Spend the Time to Finish Well By Garry Bartecki
Article Date: 12-01-2008
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
As you close up '08, familiarize yourself with several changes - and remember, AED is working in your corner.
Regardless of what may lie ahead, it’s time to get 2008 finished up, ready for audit and tax return preparation. This year it will pay to spend a little time preparing for the year-end close with many new issues to consider. Accounting Issues
There are a ton of new accounting issues this year. Fortunately, you can avoid most of them, but that does not mean your accountant isn’t going to ask you about them.
Best to be prepared for the following:
FIN 48, which deals with the disclosure and possible recording of uncertain tax positions, was supposed to go into effect for 2008 but has been delayed until Jan. 1, 2009. Consequently, if you have quarterly GAAP reporting requirements for banks or other financial institutions you will need to take FIN 48 into consideration for the first quarter. What dealers need to do is assess their ability to recognize potential uncertain tax positions; review their existing tax policies, analysis and documentation; and inventory their uncertain tax positions. Right now this rule applies to stand-alone corporations (C-Corps), in some ways to pass-through entities with additional guidance coming for pass-through entities.
- The IRS will expect to see a 263a component in your inventory. Make sure you have one recorded along with the support for the entry. This is an accounting issue for tax purposes only. Not book.
- The auditors may question your accounting for WIP. Do you or do you not include overhead in this calculation?
- The new International Accounting rules do not allow LIFO for accounting purposes. Not an issue yet, but it’s something to think about.
- Leases have always been marketed as “off” balance sheet financing. Again, this is not a current issue, but one under consideration as part of the transition to the International Rules. Lessees may be required to record the present value of the lease payments on their balance sheet.
The first two items must be covered. The last three are food for thought. Tax Issues
The goal for 2008 reporting should be a cleaner balance sheet along with maximum book profits, but with maximum tax losses. In short, make the books look as good as possible and be able to book a tax refund if at all possible. If a significant tax refund is not available, push any 2008 loss forward. Compliance Issues
- 263a requires an inventory adjustment as noted above. You must do this for 2008. Do not let the IRS make the calculation for you, which they will do if you do not comply on your own. You will not be pleased with the outcome if they do it.
- The IRS has stated that tool reimbursement programs could be used as long as they comply with the agency’s latest communication, which provides criteria far different from the way plans were administered up to this point. Better make sure your plan works or it could be expensive if you’re wrong.
- If you paid taxes the last few years you may want to determine how much and at what rate you could get a refund from filing a carryback claim for tax losses incurred in 2008. Don’t forget, the Tax Stimulus Package provides a significant depreciation benefit without any negative AMT implication.
- There are a couple of other tax issues under consideration, which we will cover during an Executive Session at AED’s upcoming convention in San Diego.
The officers of any company have employee benefit plan compliance issues with respect to fiduciary responsibilities. Make sure your plans are professionally managed with a provider who will take the fiduciary risk off your shoulders. Remember, the plan costs, in terms of being reasonable, is an area you must review.
The Red Flag Rules were due for compliance on Nov. 1, 2008. This has now been extended for another year. Adoption of the plan to protect private data and identify potential abuses has to be approved by Board Resolution and reviewed at least annually at a board meeting. Make sure it is on your annual board meeting agenda. Cash Flow
As you prepare for 2009 you have to contemplate any accounting and tax changes and the effect they will have on your financial statements and cash flow. Banks are sure to be tougher this loan renewal period, so it is in your best interest to do your homework to avoid surprises as a result of the annual audit.
AED is completely aware of the increasingly complex issues dealers are facing, and we are prepared to help establish industry standards and provide a group of industry-savvy professionals to help dealers reach supportable solutions.
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