Top 10 Business Tax Shelters You Should Know

As we all know, two things are certain in life, death and taxes. I personally enjoy doing my taxes but like everyone else I don’t enjoy paying them. In business, it is critical that you know all the deductions that are available to you when it comes to keeping your bottom line healthy and your tax payment as low as possible. See below for the top 10 business tax shelters you should know:

  • Real Estate
  • Pension Plans
  • 401K/Roth
  • Municipal Bonds
  • Health Insurance
  • Life Insurance
  • Tuition Assistance/Reimbursement
  • Charity
  • Leasing Vehicles (offers larger deductions than owning one)
  • Assets bought on credit (e.g.; computers, equipment, inventory, office furnishings, et cetera)

It is important that businesses keep a separate high yield savings account designated for taxes and automate quarterly deposits.

Notable Bookkeeping knows taxes. Let us help you with your tax planning and research needs. Contact us today

How to stop Freight Charges from eating away at profits

The shipping and delivery cycle time race amongst valuable brands like Amazon and Walmart is a fierce one. Many parcel companies like UPS and FedEx may offer discounted rates for delivering on time but the real question is, “Are they actually delivering on time?”

By implementing effective visual internal controls, your company’s accounts payable team may be able to identify delivery discrepancies per regular parcel audits and if they are found you are not required to pay them.

Other things to look for while auditing would be:

  • Duplicate Invoices: Parcel vendor may generate duplicate invoices with different purchase order numbers, tracking numbers, invoice numbers, et cetera.
  • Discount Rate Verification: Thorough analysis of the invoice is critical for the purpose of ensuring that the proper discount rate was included.
  • Improper Billings: Sometimes there are multiple parties involved and you could be billed for the shipment when your contract specifically stated that “Vendor XX” was responsible for payment. You should integrate freight audit software into your accounts payable process to mitigate this risk.
  • Rate Verification: Essentially, your accounts payable team should be ensuring that the rate base, math, mileage, product classification and weight all match your purchase order and contract agreement, otherwise you are overpaying.
  • Fuel surcharges: It is important that this charge matches what is in your contract and not the current market rate.

Auditing offers the opportunity to gather critical data, such as, shipping spend by origin, destinations, general ledger codes, customers, fuel charges, vendors and carriers. This data can be used to improve your financial planning and analysis, and offer opportunities to streamline processes and realize cost innovations.

Conducting an Effective Procurement Process Audit

Many clients bring me in to audit their expenses and identify inefficiencies in their procurement and Accounts Payable processes. Generally, a procurement process involves the following factors:

  • Current business need to purchase raw materials and supplies
  • Vendor research and price comparison, including the development of a quality plan
  • Approving the vendor and authorizing the purchase
  • Purchasing the needed items
  • Receiving an invoice
  • Delivery of goods
  • Inspection of goods before using (random sampling)
  • Paying the supplier after quality, delivery and contract agreements have been met

From my experience, errors and waste start to creep up during the Sourcing stage as many Procurement Managers are focused on price per unit instead of the total cost. This is never the best course of action because these vendors will have to recover their costs by lowering quality, not delivering on time, et cetera. It is imperative that when conducting a procurement process audit you use random sampling to analyze purchase orders, invoices and contract agreements to ensure quantity, item description, prices, discounts and any other relative information matches. Sometimes a third party may be liable for the payment of the purchase and it was paid by the company instead which results in an unnecessary expense.

In addition, the company may have entered into a contract agreement with a freight carrier that states a guaranteed delivery, if this is not being met then the company is not liable to remit any payment.

In regards to vendors, it is also imperative that you familiarize yourself with the company’s internal controls for approved vendors. You should audit their vendor profile database in their accounting software to ensure they are legitimate and compare addresses with employee addresses to detect fraud. You should also ensure early pay discounts are being taken advantage of and that the correct discount is being applied.

It is also important to actually view the process in action and write notes about what you see. You should also speak with the employees who actually performing the activities in the process to truly understand bottlenecks and pains. After you gather this information, you should collaborate with them to create a process map to further detect inefficiencies and improve the process.

Further reading on reducing procurement costs:

How to stop freight charges from eating away at profits

Price Focused Sourcing is bad for Business

Lean Wednesday Tip: Objectives of a Process Improvement Project

“The validity of a well-planned process improvement project is identified through value-added process mapping, problem isolation, root cause analysis and problem solution. Ultimately, the key to refining processes is to concentrate on the process from the customer’s point of view and identify and eliminate non-value added activities.”

E.O.W(End of the Week) Notable Tip: Emphasize Intrinsic Rewards

Happy Friday!

I hope you’ve had a great week.

Today I want to leave you with a short tip about enriching the jobs of your employees. What do employees want? You find the answer to this question by asking them! However, most employees seek intrinsic rewards.

“Employees want interesting, challenging work,  and the opportunity to achieve and grow into greater responsibility.”

 

Until next time, remember, “Success is continuous improvement.”

 

 

Taxes: Depreciation Categories

When buying assets it is important to know the best way to purchase and depreciate to take advantage of tax loopholes. Capital expenses usually include the following assets: buildings, cell phones, computers and software, copyrights and patents, equipment, improvements to business property, inventory, office furnishings and decorations, small tools and equipment, vehicles and window coverings. Below you will find a more detailed account of these depreciation categories.

3 year property:

  • plastics
  • metal fabrication
  • glass

 

5 year property:

  • cars
  • trucks
  • small planes
  • trailers
  • computers
  • peripherals
  • copiers
  • calculators
  • manufacturing equipment (for apparel)
  • construction activity assets
  • R&D equipment

 

7 year property:

  • office furniture
  • manufacturing equipment
  • fixtures
  • oil
  • gas
  • mining assets
  • agricultural structures
  • personal property

Commercial buildings can be depreciated over 39 years while residential rental real estate can only be depreciated over 27.5 years. Expenses incurred for improvements to sidewalks, roads, drainage facilities, fences and landscaping are depreciated over 20 years.

To learn more about Notable Bookkeeping’s tax planning, preparation and research services call us today at 201-937-3428.

Lean Wednesday Tip: Mitigating High Growth Challenges

“When you have a high growth atmosphere there are sure to be inefficiencies that start creeping up into operational processes. Effective leaders ensure value is maintained and/or optimized instead of lost, they create efficient workflows and make decisions by fact as a way to manage the increased challenges brought on by high growth, and don’t stray away from the profitable target customer.”

E.O.W. (End of the Week) Notable Tip: Bulk Up Savings with More Cash Back

Happy Friday!

I hope you’ve had a great week!

Today, I want to talk about ebates.com and how this site can help your business save more money. Ebates is a shopping portal website that lets you earn cash back on your purchases. You can choose to either receive your cash via check or Paypal. It’s a no brainer! It takes about 2 weeks to receive the money which then could be used to supplement your savings. “A business that saves money is always prepared for the unexpected.”

I hope you found this useful and as always, “Success is continuous improvement.”

Lean Wednesday Tip: Optimize productivity with Visual Tasks (Kanban)

“By using visual task boards (Kanban) that portray clear time-frames and expectations coupled with the prioritization of tasks including preventative plans for mitigating the unexpected is a great way to optimize productivity. It is important that work-in-progress is kept low to reduce over-production. You can also encourage employees to collaborate on tasks as well.”

E.O.W. (End of the Week) Notable Tip: You can say “NO” to a Client

Happy Friday!

I hope you’ve had a great week. Today, I want to discuss client relationships. Ever been ganged up on by frustrated employees who felt betrayed by a manager that could not say no to a client’s unfair demands or bad treatment? If not, then lucky you!

“Effective leaders know when to say no to a client that makes unfair demands and encourage their employees to speak up if a client is treating them badly. However, they make it clear that bad-mouthing a client is never acceptable.”

 

Have a great weekend! As always remember, “Success is continuous improvement.”

Successfully Integrating Value Stream Mapping into Product Development

Whenever there is a new product or service being offered to customers, there is a new process and value stream. Value Streams include both non-value-added and value-added activities and are the actions required to create a product or service from raw material until it reaches the customer. Value Stream Maps are more detailed than process maps as they include details, such as, cycle time, changeover time, uptime, process activities, operator self-inspection notes and customer specifications.

To successfully integrate value stream mapping into product development you must first accurately gather, understand, and specify the value desired by the customer. Collect real time data of the actual pathways of material and information flow. You may have to conduct several walkthroughs, first to assess the entire value stream and then to gather more detailed information. The best course of action is to work backwards as this reduces the probability of missing an activity because it takes place more slowly, without jumps to conclusions of assuming you know what happens next.

It is wise to utilize a pencil, paper and stopwatch when creating a process map. Once you have completed the map, remove the waste. Let the requirements of the customer guide you in making value flow from the beginning to the end of the process. The three most critical KPIs in a value stream map are: cycle time, value creation time, and lead time.

Cycle time refers to the time it takes to complete the overall process. Value creation time is rarely equal to cycle time. It is the time it takes to complete those work activities that actually transform the product into what the customer wants. Lead time is the time it takes to move one piece, part, product or service all the way through the process. All this information should be captured on the value stream map. When the value stream is complete, it will help you identify wasteful activities and realize opportunities for improvement. After you have identified the areas that need improvement, create an improvement plan that clearly states what needs to be done and when, has clear and visual measurable goals and objectives, complete with checkpoints, deadlines, and clear responsibilities.