Top 10 Corporate New Year’s Resolutions
How corporate and public accounting tax departments can improve their efficiency and effectiveness.
January 24, 2008
by Blake Christian, CPA/MBT
With the start of the New Year, the majority of business owners adopt a variety of personal and business New Year’s resolutions.
While technology and compliance systems have improved many tax departments, there are still numerous areas where the corporate tax director, and/or public accounting tax departments can improve the systems used for both tax planning and tax compliance.
Many of these improved systems are already needed by publicly-traded companies in order to comply with FIN 48, FAS 109 and other areas. However, all companies and public accounting firms will add significant value to their tax departments by focusing on maximizing tax reporting systems and re-evaluating all tax savings opportunities.
Following are 10 areas where we can all improve the efficiency and effectiveness of our corporate or public accounting tax departments.
- Review your tax accounting methods, including income and expense recognition policies, depreciation methods and consider requesting a change in accounting method to the extent this will decrease your overall tax burden.
- Review and consider modifying your chart of accounts in order to improve identification and tracking of your M-1 (Book vs. Tax) items throughout the year — particularly quarterly for estimated tax purposes. For example, break out your meal and entertainment expenses from travel expenses, break out shareholder life insurance, medical insurance and loans payable/receivable, state tax payments, etc.
- Enhance your depreciation software in order to track tax depreciation amounts including your “regular,” AMT and alternative depreciation methods for federal and state.
- Review your state nexus, legal structure, and local regulations in order to determine your state and local filing requirements to avoid back taxes, penalties and interest. States are increasing their aggressiveness in forcing taxpayers to file.
- Evaluate notes and accounts payable/receivable to/from shareholders, officers, directors and other related parties in order to ensure they are properly structured to meet the tax and legal rules to avoid additional imputed income, tax withholding and other tax issues associated with such arrangements.
- Analyze C Corp Earnings & Profits (E&P) and S Corp Accumulated Adjustments Account (AAA) for purposes of evaluating the most cost-effective method of distributing historical earnings, on a tax-free or taxable basis, particularly in light of the 15 percent federal dividend income rates through 2010.
- Review your overall business entity structure in order to maximize tax basis on future sales and loss flow-through from S Corps, LLCs, Partnerships, etc. You may also consider evaluating your entity structure from an expansion/contraction/exit standpoint and in order to minimize your overall state tax burden.
- Consider all federal and state tax incentives available — regardless of the location of your business — including Research & Development (up to 13%), Work Opportunity Tax Credits ($2,400 to $4,800), and pollution and energy conservation credits (up to 80%) related to infrastructure expenditures.
- Consider availability of all Location-Based Incentive Credits, including state Enterprise Zones (41 states), federal Empowerment Zones, Renewal Community, Indian Tribal and Rural Renewal County tax incentives for existing, and potential expansion, locations. There are over 8,000 major state and federal tax incentive zones and approximately 20 percent of business locations throughout the country are eligible for hiring tax credits, equipment credits, property tax reductions and/or other negotiated economic incentives.
- Review your sales and use tax, city license taxes and real and personal property tax obligations carefully, including critical payment dates, which can trigger significant penalties. These state and local taxes can generate significant tax obligations whether you are generating profits or losses.
By addressing these common issues early in the year, your organization’s tax planning and compliance can be more efficient and effective while materially improving your bottom line and your clients’.
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Blake Christian, CPA/MBT, is a Tax Partner in the Long Beach Office of Holthouse, Carlin & Van Trigt, LLP and is Co-Founder of National Tax Credit Group, LLC.