General Accounting

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: Tax considerations for C Corporation Dividend Payouts

“Avoid double taxation of a C Corporation’s dividend payout by structuring payments to shareholders as consulting fees. Shareholders must actually offer advice for the payments to be considered valid tax deductible transactions.”

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

Lean Wednesday Tip: Accounts Payable Performance

 

“By encouraging your A/P team to report and make critical department KPI metrics visual, such as, process cycle time, activity lead times, and cost per invoice with industry and competitor comparisons you realize the opportunity to reduce costs, increase productivity and streamline processes.”

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.

Lean Wednesday Tip

 

“To run an efficient accounting department opt for a chart of accounts with less than 180 accounts for improved productivity and financial planning.”

Reduce A/P and A/R Errors with Standardized Work

Per my previous article, “Taking a Visual Management Approach to Accounts Payable”, I touched upon a Lean Six Sigma technique, called, Standardized Work.

“Standardized work is often referred as standard operating procedures to refer to the activities that must happen in order to complete a process. Essentially, everyone doing the job does it exactly the same way.” There should be no difference as to how your Sr. Accounts Payable Manager enters and processes bills versus your Junior Accounts Payable Coordinator. There would also be no difference between the 10th time they did the work or the 7,000th time they performed the work.

These standards and process procedures should include visual checklists, setup procedures, an integrated preventative plan, or other process steps. They should be written in terms of expected behavior or actions, and must be auditable.

Why do visual process controls make sense? It is known that people gain 80% of their information from their vision, 18% from their hearing and 2% from other senses. By implementing visual standard operating procedures for Accounts Receivable and Accounts Payable you aid in the reduction of transaction errors and process cycle time; and improve overall productivity, and client and vendor relations.

Critical departmental information, such as, KPI metrics (cost of A/P and A/R invoice, current process cycle time, on time delivery rate, et cetera) compared with industry and competitor data should also be visual as this will prompt your team to look for opportunities to improve.