By: Brady Pipkin, CPA
Businesses with gross receipts under $1 million are eligible to elect to file tax returns on the cash basis of accounting. Most businesses with gross receipts between $1 and $10 million are eligible to file returns on a cash basis. Taxpayers who derive the largest part of their gross receipts from the following activities are not eligible to file cash basis tax returns.
• Mining activities
• Manufacturing
• Wholesale trades
• Retail trade
• Information industries such as newspapers, periodical books, database
publishers and sound recording industries
Why does this matter? By filing returns on the accrual basis of accounting (the other way to do it), taxpayers are taxed on receivables. Taxpayers are not able to deduct your prepaid expenses until they are actually expensed. The accrual method also allows taxpayers to deduct unpaid expenses (accounts payable and accrued liabilities) in the year the expenses are incurred. By switching to the cash basis of accounting for tax purposes, taxpayers can postpone the tax on receivables until collected and can deduct prepaid expenses when paid. The cash method also disallows deductions for unpaid expenses until those expenses are paid (i.e. you cannot deduct your expenses in accounts payable until you pay them).
Ultimately, the amount difference between the accrual and cash method comes down to the timing of when you will be taxed on income and allowed deductions for expenses. For many trucking companies, receivables are large, especially in today’s economy when customers are paying slower. By switching to the cash method for tax reporting, the tax on these receivables can be deferred until they are collected. In the year that taxpayers elect cash basis, it is typical to have a large adjustment that has a large decreasing effect on taxable income.
For a trucking company that has $350,000 in receivables and $100,000 in payables (and yes, we can still elect cash basis for 2008), the adjustment would result in a $250,000 decrease to taxable income in the first year. This adjustment usually results in substantial tax savings for the stockholders. If you assume a 25% tax rate (which is not unrealistic with both federal and state taxes) and that the company would still have income after the adjustment with no carryover losses from prior years, the tax savings would be $62,500.
As with any major tax election or change, you should consult with us or your tax advisor. If your tax advisor has not informed you that this election is available, you should consider switching (or at a minimum, get a second look at your tax returns). Failing to take advantage of the cash method can cost businesses a lot of money in taxes that are paid too early. In today’s economy, trucking companies need to defer the tax and use the savings to pay other bills.
If you would like to discuss the benefits of converting your company to the cash basis for income tax reporting, please contact Brady Pipkin, CPA at 501.753.9700.
Friday, March 06, 2009
Wednesday, February 25, 2009
Stimulus - Tax Provisions of Sepcific Interest to Motor Carriers
FEBRUARY 23, 2009
**See comments about write offs and bonus depreciation in this ATA article about
the Stimulus Bill.
TAX PROVISIONS IN STIMULUS BILL
The $787 billion economic stimulus bill signed today by President Obama contains several tax provisions of specific interest to motor carriers. First is an extension of net operating loss carry backs for businesses that averaged less than $15 million in revenue over the last three years. For 2008, qualifying businesses are permitted to carry back losses for five years, compared to two years under prior law. Carriers that qualify for this provision may be able to amend past tax returns for profitable years to claim refunds of taxes to use as current operating funds. A much more generous net operating loss carry back provision, which would have applied
to all businesses, was deleted from the bill in conference. The package also extends for another year two current provisions that allow businesses to write off current expenditures for equipment up to $250,000 and to benefit from bonus depreciation on capital purchases. Carriers that are government contractors will be interested to know that the requirement for all levels of government to withhold three percent of contract payments to cover potential federal taxes has been moved back a year to 2012. More generally, some segments of the industry may be expected to benefit from the outlays for housing, loans and infrastructure contained in the package.
**See comments about write offs and bonus depreciation in this ATA article about
the Stimulus Bill.
TAX PROVISIONS IN STIMULUS BILL
The $787 billion economic stimulus bill signed today by President Obama contains several tax provisions of specific interest to motor carriers. First is an extension of net operating loss carry backs for businesses that averaged less than $15 million in revenue over the last three years. For 2008, qualifying businesses are permitted to carry back losses for five years, compared to two years under prior law. Carriers that qualify for this provision may be able to amend past tax returns for profitable years to claim refunds of taxes to use as current operating funds. A much more generous net operating loss carry back provision, which would have applied
to all businesses, was deleted from the bill in conference. The package also extends for another year two current provisions that allow businesses to write off current expenditures for equipment up to $250,000 and to benefit from bonus depreciation on capital purchases. Carriers that are government contractors will be interested to know that the requirement for all levels of government to withhold three percent of contract payments to cover potential federal taxes has been moved back a year to 2012. More generally, some segments of the industry may be expected to benefit from the outlays for housing, loans and infrastructure contained in the package.
Monday, February 23, 2009
Survive to Thrive CCJ Article
Following is a recent Article in CCJ magazine in which Richard Bell was quoted. We found the article very interesting and wanted to post for all to read.
January 2009
Survive to thrive
It appears that 2009 will be an ugly year for trucking companies – and pretty much everyone else for that matter. But the continuing and potentially deepening pain may lead to a severe capacity crunch once the recovery materializes. That’s great news – provided you are one of the lucky survivors. If times are tough or look like they will be, take steps now to improve your odds of being around to reap the rewards.
Maximize cash flow. Work to speed your accounts receivable, and employ every responsible and ethical tactic to push debt and vendor payments to the last possible moment. For specific steps you can take, consult the “How to Manage Cash Flow” manual at www.commercialcarrieruniversity.com.
Tap existing credit lines – immediately. In the current credit environment, some lenders are capping lines of credit at the current balance without cause, says Jay Taylor, managing director of Capital Resource Partners. Consider drawing the maximum availability on any existing credit lines as quickly as possible to create a cash reserve.
Try to work with lenders. Because lenders also are hurting, you may have limited or no success, but it’s worth a try. Taylor recommends asking for considerations such as interest-only for a time, skipping payments or moving payments to the end of the finance contract.
Pare your fleet. “The big issue is utilization – excess capacity, in the form of trucks on the fence,” says Richard Bell, chief executive officer of accounting and business advising firm Bell & Co. “Pay the note payment, or sell the truck at a lower price. In today’s market, a 50-unit fleet may need to be a 25- to 30-unit fleet based on freight.”
Increase freight network density. “Nothing will improve short-term performance more than reducing the scope of a small company’s freight network,” Taylor says. Focus on core customers and lanes that have repetitive shipments. Eliminate shipments to destinations that are infrequent and where there are no core customers.
Hedge fuel. Based on today’s pricing, fleets probably should cap prices on at least 15 percent of their fuel volume for all of 2009, says Brad Simons, president of Simons Petroleum’s Pathway Network. If the price of a barrel of oil drops to $40 or below, fleets should look to cap at least 30 to 40 percent.
Eliminate noncritical expenses. Focus on each dollar spent on items that do not keep the company running, Taylor advises. Eliminate exceptions – even if they affect owners.
Slash overhead. Most carriers could reduce overhead by 30 to 40 percent for a year or two without destroying core capabilities, Taylor says. He suggests offering furloughs without pay, cutting hours for hourly employees, having employees share shifts, leaving all vacancies in place and, ultimately, instituting a reduction in force if necessary. And Bell suggests looking at situations where technology can take over. “Instead of five trucks per one support person, shoot for eight trucks to one support person.”
Watch customers very closely. Don’t forget that the recession may be hurting your customers more than you. Stay on top of accounts receivable and any other indicators of financial health. If you aren’t careful, bankruptcy could not only wipe out receivables but also even require you to return recent freight payments to the trustee. For more on dealing with bankrupt customers, see “Become a critical vendor,” Law, November 2008.
Reduce management compensation. In a crisis, Taylor recommends imposing “voluntary” 25 percent pay cut on the management team to show leadership. At a minimum, shareholders should reduce their own compensation.
Look within the business for solutions. “If your company turns south, fix the problem, but do not throw all your personal funds into the company,” Bell says. “The ship is sinking for some reason, and 90 percent of the time, it is revenue-driven.”
These are tough tactics, but more profitable days lie ahead if you manage to stick around for them.
This article was written by:
AVERY VISE is editorial director of Commercial Carrier Journal · E-mail avise@ccjmagazine.com
January 2009
Survive to thrive
It appears that 2009 will be an ugly year for trucking companies – and pretty much everyone else for that matter. But the continuing and potentially deepening pain may lead to a severe capacity crunch once the recovery materializes. That’s great news – provided you are one of the lucky survivors. If times are tough or look like they will be, take steps now to improve your odds of being around to reap the rewards.
Maximize cash flow. Work to speed your accounts receivable, and employ every responsible and ethical tactic to push debt and vendor payments to the last possible moment. For specific steps you can take, consult the “How to Manage Cash Flow” manual at www.commercialcarrieruniversity.com.
Tap existing credit lines – immediately. In the current credit environment, some lenders are capping lines of credit at the current balance without cause, says Jay Taylor, managing director of Capital Resource Partners. Consider drawing the maximum availability on any existing credit lines as quickly as possible to create a cash reserve.
Try to work with lenders. Because lenders also are hurting, you may have limited or no success, but it’s worth a try. Taylor recommends asking for considerations such as interest-only for a time, skipping payments or moving payments to the end of the finance contract.
Pare your fleet. “The big issue is utilization – excess capacity, in the form of trucks on the fence,” says Richard Bell, chief executive officer of accounting and business advising firm Bell & Co. “Pay the note payment, or sell the truck at a lower price. In today’s market, a 50-unit fleet may need to be a 25- to 30-unit fleet based on freight.”
Increase freight network density. “Nothing will improve short-term performance more than reducing the scope of a small company’s freight network,” Taylor says. Focus on core customers and lanes that have repetitive shipments. Eliminate shipments to destinations that are infrequent and where there are no core customers.
Hedge fuel. Based on today’s pricing, fleets probably should cap prices on at least 15 percent of their fuel volume for all of 2009, says Brad Simons, president of Simons Petroleum’s Pathway Network. If the price of a barrel of oil drops to $40 or below, fleets should look to cap at least 30 to 40 percent.
Eliminate noncritical expenses. Focus on each dollar spent on items that do not keep the company running, Taylor advises. Eliminate exceptions – even if they affect owners.
Slash overhead. Most carriers could reduce overhead by 30 to 40 percent for a year or two without destroying core capabilities, Taylor says. He suggests offering furloughs without pay, cutting hours for hourly employees, having employees share shifts, leaving all vacancies in place and, ultimately, instituting a reduction in force if necessary. And Bell suggests looking at situations where technology can take over. “Instead of five trucks per one support person, shoot for eight trucks to one support person.”
Watch customers very closely. Don’t forget that the recession may be hurting your customers more than you. Stay on top of accounts receivable and any other indicators of financial health. If you aren’t careful, bankruptcy could not only wipe out receivables but also even require you to return recent freight payments to the trustee. For more on dealing with bankrupt customers, see “Become a critical vendor,” Law, November 2008.
Reduce management compensation. In a crisis, Taylor recommends imposing “voluntary” 25 percent pay cut on the management team to show leadership. At a minimum, shareholders should reduce their own compensation.
Look within the business for solutions. “If your company turns south, fix the problem, but do not throw all your personal funds into the company,” Bell says. “The ship is sinking for some reason, and 90 percent of the time, it is revenue-driven.”
These are tough tactics, but more profitable days lie ahead if you manage to stick around for them.
This article was written by:
AVERY VISE is editorial director of Commercial Carrier Journal · E-mail avise@ccjmagazine.com
Tuesday, January 20, 2009
Retirement Age Considerations - Social Security Update
Below please find a link which is an informative social security bulletin on the merits of delaying your social security benefits from age 66 to age 70. The benefit will increase 8% if you were born after 1943, each year. With the loss in 2008 of an average 30 to 40% of balances in our respective retirement accounts, the strategy may be to work till age 70 and take advantage of the social security increase by waiting, and use the additional four years to build your retirement back.
http://www.socialsecurity.gov/mystatement/insert2.htm
Monday, November 03, 2008
2008 Bell and Company - Race for The Cure
Here is a picture of Team Bell before the 2008 Susan G. Komen Race for the Cure. At Bell & Company we have all been touched by this disease, we have clients, friends and family that have suffered from this disease. We walk and the guys cheer each year to support that one day they will have the cure for this disease. This is an event that we look forward to each year and allways have a wonderful experience.
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