Day: November 9, 2021

The Not-So-Secret Tax Savings Tool You Need to Know About

Normally, it takes almost four decades to fully recover the cost of commercial property through depreciation deductions – and as you know, time is money.

As a manufacturing company owner, you may own the building, or several buildings, where your goods are produced. Luckily, there’s a worthwhile alternative that can help you claim much faster write-offs. Let’s dive into the incredible savings that your future can hold if you opt to commission a cost segregation study.

How Does Cost Segregation Work, Anyway?

A cost segregation study allows a business to recoup its investment in qualified property faster than usual by identifying various building components that may be classified as personal property or land improvements, which are subject to shorter write-off periods. For instance, some property may be classified as five-year, seven-year, or 15-year property eligible for accelerated depreciation methods. Land improvements are depreciated over 15 years using the 150% declining balance method.

Manufacturers that acquire a building may benefit from three depreciation-related tax breaks for building components identified in a cost segregation study including a Section 179 deduction, a first-year bonus depreciation deduction, and a MACRS deduction.

As a general rule, “personal property” is defined in IRS regulations as tangible depreciable property (other than buildings and their structural components) used in certain industries, such as manufacturing, as well as several other specialized types of property.

Notably, manufacturers often benefit from identifying equipment foundations, exhaust and ventilation systems, and security systems as tangible personal property. Costs of landscaping, underground utilities, and site lighting may be written off as land improvements.

How Much Savings Are We Talking?

Depending on your circumstances, about 20% to 40% of the eligible costs of a light manufacturing facility may constitute tangible property and land improvements. The benefits may be even greater for a heavy manufacturing company. It’s common for 30% to 60% of the eligible costs of a heavy manufacturer to be reclassified to tangible property and land improvements.

Let’s review a potential scenario. For example, if you buy a building for $5 million in 2021, the annual straight-line depreciation deduction would be about $128,205 ($5 million divided by 39 years). However, let’s say your CPA performs a cost segregation study and determines that you can reclassify $1 million of the cost (20% of $5 million) as property that can be depreciated over seven years. You decide to take advantage of the deduction and bonus depreciation rules that allow you to immediately deduct the cost of those components in the tax year it was placed in service. So, you can deduct $1 million plus $102,564 on the remaining $4 million of cost ($4 million divided by 39 years).

What’s Right for Your Business?

The best time to perform a cost segregation study is the tax year that your company buys the building, but a cost segregation study can be commissioned any time after the acquisition, renovation, or construction of the facility. How much could your business save by performing a cost segregation study? And which tax breaks will save you the most over the long run? Our Manufacturing Services Group works with businesses in diverse industries including building materials, food processing, specialty sporting goods, commercial lighting, health, beauty, pharmaceuticals, and more. Whatever the size of your venture, we can help you meet your goals, now and in the future. Contact our RBT team of professionals for more details about how a cost segregation study could improve your situation.

How to Save Big with Construction Management Software

Running a successful construction company requires a lot of hard work, organization, and coordination. Your team is relying on you to communicate plans, your client is relying on you to communicate issues that may arise, and you are juggling multiple schedules, budgets, timelines, (personalities…), and maintaining a safe work environment. Before we head into the new year, it’s important to reevaluate your current workflow and determine how effectively your team is working. Remember, inefficient project management equals lost revenue.

What’s the real value of construction project management software?

A new market study published by market research company Global Industry Analysts Inc. (GIA), released its report to summarize the global market outlook for the next few years. The report presents fresh perspectives on opportunities and challenges in a significantly transformed post COVID-19 marketplace. The global market for Construction Management Software estimated at $1.4 Billion in the year 2020, is projected to reach a revised size of $2.9 Billion by 2026. The U.S. market is estimated at $426 million in 2021, while China is forecast to reach $625.2 million by 2026.

What can construction project management software accomplish for your company?

Construction project management software is collaborative technology that allows the parties involved in a construction project to find, share, and update information related to the project. Common functions of these tools handle various aspects of the project such as scheduling, contract and permit management, quality assurance, and safety. While selecting a specific program is extremely personal and preferential depending on your business strengths and weaknesses, we want to mention ten of the key features that most construction project management software will include, as outlined by the research team at Construction Coverage where you can also find a list of their top 2021 software picks.

Document Storage & Management
Submittals
RFIs
Change Orders
Instant & Remote Syncing:
Daily Logs
Digital Plan Markup
Punch Lists
Reporting
Integrations

What are examples of how you can save big with construction project management software?

Save on employee wages by getting teammates up to speed faster than traditional methods
Stop wasting money searching for project files or documents with software that keeps everything organized and easy to find quickly
Cut traditional training costs by allowing new employees to understand your workflow through the software, instead of lengthy one-on-one employee training sessions
Fewer mistakes equal more savings! Integrating management software will eliminate costly human errors that waste time and money for your company

Many construction management tools take care of documents exchange between the contractor and the owner, their subcontractors, suppliers, or other involved parties with storage and collaboration capabilities for project plans, subcontractor contracts, receipts, and other important documents. Taking advantage of this technology can streamline your daily operation, allowing your team to have access to organized reports that summarize things like project progress, budget, and spending information. Additionally in the increasingly remote-heavy working world, working offsite won’t be a problem with cloud-based products. At a time when you and your team need to access information instantly, this software is a game-changer. Do you want to make sure you are operating at peak financial efficiency? Our professional RBT team that specializes in construction clients is here to help, contact us today.

Sources: Yahoo Finance, Construction Coverage

Need to Know: DOL Cybersecurity Guidance

Cyber-attacks are on the rise.

As you’re aware, plan sponsors, administrators, and service providers maintain electronic information that can be extremely vulnerable to cyber-attacks, including personally identifiable information (PII), participant enrollment data, and of course, electronically protected health information (EPHI). Responsible plan fiduciaries must safeguard against cybersecurity risks, but not everyone is prepared. This year, The Department of Labor (DOL) issued a new cybersecurity guidance package and has already begun including this in its enforcement efforts. Ask yourself this important question: does your team have internal cybersecurity policies that already meet updated standards? If not, it’s time to draft new policies or risk falling behind and falling victim to an attack.

What prompted this action?

Earlier this year, the Government Accountability Office (GAO) released cybersecurity issues and risk findings. The GAO issued an urgent recommendation that the DOL affirmatively state whether cybersecurity is a fiduciary obligation and provide guidance for plan sponsors and service providers regarding mitigation of this cybersecurity risk. In response, the DOL issued a three-part cybersecurity guidance package containing:

Best Practices.

The first document, Cybersecurity Program Best Practices supports information technology security protocols for Employee Retirement Income Security Act (ERISA)-covered benefit plans. The memo outlines 12 points for cybersecurity risk mitigation, including conducting cybersecurity risk assessments on at least an annual basis and conducting third-party audits of system security controls. In regards to conducting a third-party audit, EBSA indicated that if it were to review an audit program it would expect to see evidence of audit reports, penetration test reports, and documented corrections of any identified weaknesses. The document also calls for a plan sponsor’s cybersecurity program to be managed at the executive level, and annual cybersecurity awareness training. EBSA further instructs plan sponsors and fiduciaries to utilize a secure system development life cycle program (SDLC) to ensure that new systems are designed to prioritize cybersecurity considerations. For example, EBSA suggests certain events (like when a participant wants to change their account information) should automatically trigger two-factor authentication or other additional protocols.

Tips for Hiring Service Providers.

The second document, Tips for Hiring a Service Provider With Strong Cybersecurity Practices, is aimed at helping plan sponsors and fiduciaries protect their cybersecurity interests when working with a third party. In this guidance, EBSA lists six core points that plan sponsors and fiduciaries should follow in order to meet their responsibilities under ERISA. EBSA suggests asking potential service providers whether they have cybersecurity insurance coverage and reviewing public information regarding the provider’s cybersecurity track record and potential liabilities. Entering into a new contract? Time to read the fine print. Plan sponsors should carefully review the contract, ensuring it includes protections addressing access control policies, encryption policies, and a cyber threat notification procedure. Finally, EBSA recommends that service provider contracts include a clause requiring ongoing compliance with evolving cybersecurity information and standards.

A Model Notice offering Cybersecurity for Participants.

The third piece of guidance, Online Security Tips, is directed at participants and provides a list of best practices to reduce the risk of fraud and cybersecurity threats to retirement accounts. This guidance provides best practices for maintaining a secure online presence, such as using multi-factor authentication where possible, changing passwords regularly, and avoiding public Wi-Fi.

Since releasing this guidance, the DOL began ramping up its cybersecurity audit protocols by contacting plan sponsors and fiduciaries and inquiring as to their cybersecurity practices.

This means it’s a good idea to be prepared to produce cybersecurity and data privacy policies, information, and documentation related to past incidents, and risk assessment reports. Whether or not it’s been a priority in the past, cybersecurity considerations should become part of your regular administrative process. Please note that this DOL guidance likely applies to all plans governed by ERISA, not just retirement plans. To stay protected and prepared, a cybersecurity review should also be performed for ERISA-covered health and welfare plans. If you have any questions about the new guidance, please reach out to our team of dedicated professionals.

Source: DOL, GAO, Benefits Pro, Security Magazine

Local Sales Tax Collections Up 20% in Third Quarter

The height of the COVID-19 pandemic spelled financial disaster for communities across the country. I’m sure you remember feeling the panic that set in, as local leaders grappled with prioritizing public safety amidst an unprecedented health crisis while simultaneously dealing with an economic nosedive. Just how bad did it get, and what stage of recovery is our state in today? Read on to get a recap of where we’ve been, how the rebound looks, and what’s ahead for our communities.

Local governments depend heavily on sales taxes as a major source of revenue, but as New Yorkers stayed home and bought less during the pandemic it created significant shortfalls within communities and collectively statewide. New York sales tax collections dropped by $1.8 billion or 10% in 2020 compared to 2019, State Comptroller Tom DiNapoli said in a report released in February 2021. For perspective, that’s a steeper drop than in the 2009 recession, when collections dropped 6%. Sales tax revenue dropped most sharply in the second quarter as former Gov. Andrew Cuomo closed nonessential businesses statewide. Collections plummeted 27.1% from April to June compared to the previous year. Drops in sales tax collection in New York City, which represents over 40% of sales tax collections statewide, fueled much of the state’s losses. The city saw a 35% drop from April to June, then a roughly 20% dip for the rest of the year.

While the pandemic isn’t over, things are finally starting to look up. Now, nearly two years later, local sales tax collections continue to show year-over-year growth after significant drops. Local sales tax collections totaled $5.2 billion in the third quarter (July-September of 2021), up $861 million (20%) from the same period last year and continuing the trend of exceeding pre-pandemic levels, according to a State Comptroller report released on October 28, 2021. Statewide, every region saw solid growth in sales tax collections during the third quarter compared to the same period last year. Outside of New York City, the July-September period marked the fifth quarter in a row that county and city sales tax receipts met or exceeded 2019 pre-pandemic levels for the same period. Some of the regions with the strongest third-quarter growth include Mid-Hudson (16.5%), Long Island (16.3%), and the Capital District (15.4%).

State property tax is telling a different story, and according to the latest data from the State Comptroller’s office, the New York City office market will take years to recover from the pandemic, with over $850 million in property taxes lost in the 2022 fiscal year. The traditional commercial property value is shifting dramatically, and I’m sure you’ve felt this crunch in your own community. The pandemic meant innovating and embracing remote working models, and the reality is while companies may have anticipated these alternative setups as temporary fixes, the majority of Americans have no interest in going back to the “old model” of work in an office building. According to a recent survey by FlexJobs, 65% of remote workers do not want to return to their offices, and many employers are continuing to use a remote work arrangement. Additionally, an employee working from home in a state where the employer is not headquartered creates several issues that we will likely be working out for years to come.

Overall, strength in statewide local collections likely reflects national changes. The U.S. Census Bureau’s advance monthly retail trade report shows strong year-over-year growth for the third quarter, especially in sectors such as gas stations (38%), clothing stores (35%), and restaurants and bars (34%). Increased costs for goods also increase sales tax collections, and the price of consumer goods and services during this third quarter grew by 5.3% over the same period last year, as measured by the Consumer Price Index. Looking ahead, local governments need to continue closely monitoring the overall employment and real estate markets, including differences in submarkets. By tracking what’s going on in your community, you can deliberate carefully over strategic choices to influence office employment and space and ensure that policy decisions will alleviate negative impacts on tax revenue and the economy. It’s also important for local governments to closely monitor changes as supply chain shortages and workforce disruptions continue to be huge factors in economic recovery. Want to consult one of our RBT government team professionals? Contact us today.

Sources: OSC, AP News

How Selecting the Right Audit Professionals Can Save You Millions

With the current administration aiming to significantly boost the Department of Labor’s (DOL’s) funding for 2022 and over the next 10 years, more DOL audits could be on the horizon for employers. The Employee Benefits Security Administration (EBSA), a DOL agency, is responsible for ensuring the security and integrity of private employee benefits plans throughout the country. And if employers are not prepared, a DOL audit or investigation carries significant risk. Organizations can be identified for audits for several different reasons, including:

Participant complaints
Referral from another agency
Errors or omissions in Form 5500 filings

Typically there isn’t much advance notice when an employee benefit plan is audited. Organizations can’t stop an audit, whether it is random or for a specific reason. If an audit uncovers violations, then corrective action may be required including paying penalties. By ensuring compliance in advance of an audit, organizations can prevent costly fines and save thousands, if not millions, of dollars.

What traits should you look for when interviewing auditors?

There are a variety of professional firms you can choose to work with and it’s important to take the time to connect with each option and determine which best fits your company’s needs. As a general rule, the firm you select should be able to discuss how their policies and procedures provide your company with reasonable assurance that the firm and its personnel comply with relevant ethical requirements. The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct establishes the fundamental principles of professional ethics, which include responsibilities, public interest, and integrity, objectivity, due care, scope, and nature of services.

What are “red flags” to look out for?

Generally speaking – accounting, auditing, and DOL rules are not static. While it’s not your job to keep up with accounting, auditing, and regulatory changes, it certainly is the job of the firm you trust with your audit. Missed changes in reporting requirements or upcoming deadlines could mean irrevocable damage to your company. If you get the sense that the firm members you meet with are at all disorganized, or fail to regularly revise firm checklists, programs, and other materials each year to reflect any new accounting, auditing, or regulatory requirements – it’s a major red flag. In fact, the DOL regularly reviews hundreds of audits annually and releases a report describing the most common “major audit deficiencies” for reference. A recent DOL audit quality study found that nearly 40% of plan audits had deficiencies (a copy of this study can be found here).

What’s an important question to ask potential firms you may work with in the future?

You should ask the firm what their criteria are for accepting and taking on new clients. The firm you select should establish policies and procedures for the acceptance and continuance of client relationships and specific engagements. Does the firm consider the integrity of the client? The identity and business reputation of the client’s principal owners, key management, related parties, and those charged with its governance are all important factors. There are real risks associated with providing professional services to a range of clients, and it’s important to know you’ll be in good company. You may learn that the firm is eager to take on any and every client that walks through their door (another red flag). Whatever the response you get, you’ll be able to gather a lot of valuable insight when you ask this simple question, so you can make an informed decision. Additionally, be sure to ask to obtain the auditor’s most recent peer review letter.

Ultimately, while you have a thousand other things on your to-do list, it’s important to find an auditor that maintains consistent teams, demonstrates industry knowledge, and keeps disruption to a minimum. While selecting a qualified audit firm won’t prevent you from having a plan selected for an audit, it can prepare and protect your plan. RBT CPAs, LLP’s audit team has developed guidelines that help us perform audits as efficiently and effectively as possible. We assign experienced staff, so you don’t need to teach new auditors your business every year. We gather industry knowledge from Firm resources and market research, to identify and target issues significant to your business. Finally and perhaps most importantly, we maintain as transparent a presence as possible during fieldwork, to minimize disruption and utilize your employees’ time efficiently. Contact us to set up a primary consultation to learn more about what we can do for you.