Industrial/Manufacturing Accounting

LIFO Inventory Implementation

IMPROVE YOUR CASH FLOW WITH LIFO

If your businesses could use improved cash flow, ask yourself:

1. Do you have inventory?
2. If so, do you expect an increase in the purchase price of your products?
3. Are you paying income taxes now, or expect to pay them in the future?

If you answered “yes” to these questions, LIFO inventory accounting may be the answer for you.

WHAT IS LIFO ACCOUNTING?

LIFO – “last in-first out” – assumes the last items of inventory you buy or produce are the first ones you sell. Therefore, the cost of your inventory at the end of the year represents the cost of items first purchased or produced. Each year, you compute the amount of inflation in your inventory. That inflation is captured in an account called the LIFO Reserve. As long as inflation continues and inventory remains fairly steady or grows, your LIFO Reserve grows, too.

LIFO BENEFITS YOUR INVENTORY

By choosing LIFO, you can reduce current taxable income and pay less tax. The deferral of taxes increases the cash available to use in your business. In essence, you have an interest-free loan from the government! Over the last three years, LIFO enabled one client to defer roughly $160,000 in taxes. In this economy, an extra $160,000 of cash comes in handy.

KNOW WHEN TO USE LIFO

In inflationary times LIFO results in a decrease in net income – impacting those with loan covenants tied to net income. However, financial institutions will understand the impact on your financial statements and make allowances for the change to LIFO accounting. Also, know that the tax savings are a deferral of income: If you liquidate your entire inventory (by selling your business) you’ll have to report the income you previously deferred. As long as you keep operating your business, you’ll maintain the deferral.

FREE INITIAL ANALYSIS

Jackson Thornton Industrial will provide a free initial analysis, including the estimated tax deferral as well as the estimated cost for the actual, full analysis. It’s a simple, no-risk way to see the cost benefit of converting to LIFO for your business.

Research and Development Tax Credit Studies

THE R&D TAX CREDIT – NO LAB COAT REQUIRED

A common misconception is that the R&D Tax Credit only applies to developers of new products or high-tech businesses. However, many other companies have invested time, money and resources toward:

• developing new products,
• improving existing products,
• developing new materials,
• building or testing prototypes and models, or
• developing or improving manufacturing processes.

If any of these apply to your company, you may qualify for the R&D Tax Credit.

WHAT IS THE R&D TAX CREDIT?

The R&D Tax Credit is a government-sponsored economic incentive that provides permanent benefits to drive down effective tax rates and to generate cash flow.

CASH FROM THE R&D TAX CREDIT

The R&D credit reduces past, current and future years’ federal tax liabilities, creating an immediate source of cash. It’s a dollar-for-dollar offset against taxes owed! We have a client who received approximately $575,000 in R&D Tax Credits over three years – and another who received nearly $290,000 in R&D Tax Credits over the same period. Not a bad return on their investments.

KNOW WHEN TO USE THE CREDIT

Although the R&D Tax Credit can be used to reduce regular tax to zero for a tax year, it cannot be used to offset alternative minimum tax. However, unused credits carry back one year and then carry forward for up to 20 years.

FREE INITIAL ANALYSIS

We will provide a free initial analysis. As part of the initial analysis we will provide you with the estimated tax credit and the estimated cost to do the actual analysis. This way you can determine the cost-benefit of a R&D Tax Credit study for your business.

Cost Segregation Studies

IF YOUR WALLS COULD TALK

What are the walls of your building – and the roof, plumbing, electrical system – hiding? It could be yearly federal income tax savings, waiting to be discovered.

A cost segregation study can help you uncover these annual income tax savings. In the last couple of years, has your business:

• Constructed a new facility?
• Acquired an existing facility?
• Renovated an existing facility?

If you answered “yes” to any of these, then a cost segregation study may save you money.

WHAT IS A COST SEGREGATION STUDY?

Through a cost segregation study, the components of a building are reclassified into proper class “lives” according to government legislation and IRS revenue rulings. The result: Owners maximize their tax depreciation deduction, and reduce current-year income taxes.

IMPROVED CASH FLOW

The main benefit of a cost segregation study is improved after-tax cash flows from accelerated tax depreciation. For example, a study we performed showed that a client with nearly $10 million invested in buildings produced improved cash flows through tax deferrals of around $390,000 over the life of the project. That same company also deferred over $400,000 in taxes in the first year – $400,000 it didn’t have to pay in taxes, and available for day-to-day operations. What could you do with that kind of money?

SELLING AFTER STUDY

If you sell your property, your company may have to recognize more ordinary gains. While the profit on the sale of real property is recognized as capital gains, personal property is recognized as ordinary gains, and taxed at a higher rate.

FREE INITIAL ANALYSIS

No worries. No surprises. We’ll provide a free initial analysis, including the estimated tax deferral as well as the estimated cost to do the actual, full analysis. This way you can determine the cost-benefit of the Cost Segregation Study for your business with no commitment beforehand.