On your mark..Get set..Go!
Another year behind us….and by all indications it should have been a profitable year, one that increased company cash flow, equity and overall third- party value. If this is true… HORRAY for you.
On the other hand, if your sales have been flat the last couple of years without any significant growth in earning and cash flow, you need to conduct an internal audit to find out why. (To be discussed in a future column)
Before we get started let me tell you the ESOP webinar we had was quite good (if I say so myself). I even liked it because it did not get into the weeds or try to throw a lot of numbers at the participants. Nate Perkins from CSG Partners presented some easy to read slides along with a narrative that laid out the benefits of an ESOP whether the company shareholder plans to leave, stay or something in between. Being very familiar with the process I went over the pros and cons of the deal along with a suggested process that will allow a pending candidate to assure themselves that they have a tentative deal before they start spending a lot of money. Here is the link to the webinar. https://register.gotowebinar.com/recording/4410788045880436225 If you missed and may have some interest I suggest you go to the link and give it a go. Any questions, let me know.
Now back to topic for this month.
I have been pushing you for months to estimate your income tax bite for 2018 using the new law. If you did that you have a rough idea of where you stand, which when compared to 2017 tax law should be a bit different. I suggested this in the first place to help you decide what steps to take when reviewing your year-end balance sheet and income statement and any potential adjustments you will make to prepare for your year- end accounting, especially if you find yourself with potential taxes you would like to deal with.
Those of you who have no idea how the new tax bill will impact our checking account will just have to wing it and hope you are doing the right thing.
C-corps have a pretty good idea where they stand (starting with a 21% rate) but there are many changes to deal with in terms of fixed asset additions, interest expense limitation, NOL limitations, LKE limitations and many others.
Flow-through entities (S-corp, LLC, etc.) have a much more complex set of facts to deal with. Not only do you have to deal with the limitations noted in the prior paragraph but also figure out what amount of taxable income is going to show up on our 1040 after applying the NEW DEDUCTION FOR PASS-THROUGH ENTITIES.
Boy, that 21% C-corp rate is going to look very attractive to our Flow-Through readers because the NEW DEDUCTION may not get you to where you want to be. But before you tell yourself to switch from a S-corp to a C-corp, get yourself a real tax pro to review the consequences of such a move because based on what I am reading the switch may not be such a good idea. I have some articles I can pass along regarding the switch if you would like to see them.
So, as you prepare for the year end I suggest you decide what adjustments and write-offs have to be considered.
- AR write offs and an adjustment of the reserve account
- Parts to write down or off per your internal parts policy
- A used equipment valuation to use when pricing units for sale
- Fleet adjustments: What to sell off by year end
- A review of material repairs that could be capitalized (per your policy)
- A review of tech performance for both productivity and efficiency.
- A review of your interest expense to determine what interest is subject to limitation.
But let us not let the tax tail wag the dog. Have your books reflect your “true” income and EBITDA numbers so that you don’t have to go back to explain why your books are not really your books.
Do your homework and get the proper level of professional help to explain the C corp issue if you plan to explore that route.
One last pain in the butt to make note of. I have been getting questions about the new lease capitalization GAAP rules. These rules take effect in 2019 for public companies. So, they want to know what they have to do and what they can get away with in terms of your lease contracts. These questions will expose you to reveal your breakdown of the lease payment between equipment and maintenance. In short, they do not want to have to capitalize the leases, but with most of your long-term deals will require that they do so. And before you start thinking you will make the leases month to month …that don’t fly.
Thinking of setting up a Lease Review program to help dealers provide lease info that meets GAAP to their customers for accounting purposes. Will speak to Dean about it to see if maybe we can do this through MHW.
Boy, you have a lot on your plate before year end……better GO and get it done.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry.
