Manufacturing – GMG Savings

The Great Shock of April 15th

This tax season I encountered a record number of business owners that were outright shocked to find out how much they owed for 2014 taxes. There are a few common questions I keep hearing.

#1 – How Did I End Up Owing Money?

There are four key areas that contributed this year to so many companies owing:

Surprise Profitability
The last several years have been decent if you’re lucky but dismal for most. This caused most companies to pull back on quarterly tax prepayments, or often eliminate them altogether.
2014 Was Better Than Expected
There is no question that 2014 started an upswing that is continuing to get stronger with each passing quarter (even for those companies have yet to feel the impact of that upswing). Once income began to flow again, many businesses were forced to make capital investments that were years overdue. This means that although 2014 was in fact more profitable, it wasn’t “felt” by many Owners. Not all investments may be written off in the current year. Even if the bank account hasn’t recovered, the P&L sheets have and additionally the IRS considers many to be profitable and out of AMT. Even if the bank accounts don’t reflect the same.
Tax Breaks Disappeared
Without many major tax breaks that companies have not only come to enjoy, but have come to count on, many are finding themselves with unexpected increases to their tax liabilities.
Tax Rates Increasing
Tax rates have increased, for example; the recent Personal Limit increase to 40% and Capital Gains increasing from 15% – 25%.

#2 – Why Didn’t My CPA Warn Me?

Many owners are left wondering:

Did my CPA let me down?
Why didn’t they prepare me for this?

The reality is, your CPA only knows the information you provide to them And for most of us business Owners we don’t do our CPAs any favors. As Owners we know this, and if we are honest we’ll admit that we just don’t take the time necessary to discuss an overall tax strategy with our CPA.

Yesterday I spoke with one CPA that was completely unaware that their Client had purchased an additional building (over $2M in cost), and another CPA that upon delivery of our Cost Segregation report didn’t understand where we got our figures from only to find out the Client spent over $300K in renovations last year that they failed to tell the CPA about.

Most business Owners are guilty of … running their business. As business Owners, we make decisions today that are good for our company and good for our bottom line, with little to no regard of how it affects our tax strategy (and it usually wouldn’t cross our minds to call our CPA in the middle of summer to review something for next April).

#3 – What Can I Do About It?

Step #1 for most business Owners I’ve talked to is:

Pound their fist on the desk angrily while complaining about the government
When that ceases to provide relief move on to the below Step 2

Step #2 (True Step #1)

For some business Owners, you bit the bullet and made a payment yesterday, for others you either filed extensions or simply filed without making a payment and are going to wait for the dreaded IRS bills to arrive.

In either instance, the good news is that just because tax day has come and gone doesn’t mean your numbers are written in stone. There is over $200B in Federal Tax Incentives allocated to small and mid sized businesses to help offset your liability.

We’ve developed a simple online tool for business owners to check in 30 seconds if you qualify for any Federal Programs.

Click here to find out in 30 Seconds if you qualify for any Federal Tax Incentives.

The Perfect Storm Catapults Some Manufacturers While Crippling Others

For those that follow the Podcast or the Blog, I’ve been talking since last summer about a “storm” coming for U.S. Manufacturers. A storm that was going to catapult some, while crippling others. We were right in our prediction, but underestimated just how much this “storm” would affect Manufacturers. Daily I find myself speaking to Manufacturers, all with the same story, and all lacking answers on how to solve it.

Right now the industry is facing the shocking realization of large upcoming tax liabilities, without the capital to pay those liabilities. Even though extensions may be filed and payment arrangements may often be made, this is a slap in the face to business owners. They’ve spent years digging out of a hole, surviving. Just to go back into debt and have this daunting concern hanging over their heads while they should be shifting their focus from survival to growth.

There are 4 Significant Changes That Have Caused This “Perfect Storm”:

Surprise Profitability
The last several years have been decent if you’re lucky but, dismal for most. This caused most companies to pull back on quarterly tax prepayments, or often eliminate them altogether.
2013 Was Better Than Expected
There is no question that 2013 started an upswing that is continuing to get stronger with each passing quarter. Manufacturers not only did not anticipate this upswing, they did not really “feel” it either. For years they were forced to cut back to the essentials just to survive. Once income began to flow again, many were forced to make capital investments that were years overdue. This includes; equipment, staff, software, and facility improvements. This means that although 2013 was in fact more profitable, it wasn’t “felt” by many owners. Not everything may be written off in the current year, even if the bank account hasn’t recovered, the P&L sheets have, and the IRS considers many to be profitable and out of AMT, even if the bank accounts don’t reflect the same.
Tax Breaks Disappearing
Without Bonus Depreciation, (and other major tax breaks that Manufacturers have not only come to enjoy, but have come to count on), many are finding themselves with unexpected increases to their tax liabilities.
Tax Rates Increasing
Tax rates are increasing for example; the recent Personal Limit increase to 40% and Capital Gains increasing from 15% – 25%.

So, what happens when companies cut back on paying taxes over the last few years, have a “surprise 2013” that showed up in profit but not necessarily in their bank account and experience tax rate increases, even though tax breaks continue to disappear?

They have a choice, either be crippled or be catapulted. Those that choose to put their head down and re-enter survival mode will surely suffer for it. Those that seek out ways to grow will take over new positions in market share while others scramble to survive.

One key area growing manufacturers are taking a serious look at is what Specialized Tax Incentives are available to offset these increases in Tax Liability. Programs such as the R&D Tax Credit, Cost Segregation, Hiring Incentives, and Property Tax Mitigation. Programs that previously seemed out of reach, all of a sudden are making it to the top of the priority list.

Related Articles:

What the Last 5 Presidencies Have In Common and How It Affects Every Manufacturer In America

Believe it or not, there is at least one thing that the last five Presidential Administrations have unilaterally supported, and we can feel quite certain the next will as well.

There is a little known tax credit that is part of Section 41 of the Internal Revenue Code, allowing manufacturers to reclaim a small portion of their annual payroll simply by performing activities manufacturing companies are already doing as part of daily operations.

This credit may be the only thing both sides of the aisle can actually agree on. It has bipartisan support in both houses, backing of the Obama Administration, and has been renewed by every single Presidential Administration over the last 32 years. How can there be such a disconnect between what may be the only thing the last five presidencies have in common?

A lot of the confusion is in the name. Many manufacturers don’t believe they do “R&D” because they don’t have a traditional R&D department. The IRS definition of R&D is quite different than yours or mine. It often includes activities such as:

Manufacturing
Fabrication
Engineering
New Product & Process Development
Developing New Concepts or Technologies
Design – Layout, Schematics, AutoCAD
Prototyping or Modeling
Testing / Quality Assurance: ISA 900X, UL, Sigma Six, etc.
Integration of new machinery (CNC, SLA, SLE, etc.) into existing processing
Software Development or Improvement
Automating or Streamlining Internal Processes
Developing Tools, Molds, Dies
Developing or Applying for Patents

Just to name a few…….

Only the folks in Washington DC could take unilateral support and turn it into unilateral confusion.

Since 2004 Growth Management Group has been educating and assisting Manufacturers and other Commercial Property Owners on their rights to programs buried deep within the tax code. To date we’ve assisted small and mid sized companies discover over $300M in benefit. Contact us for a comprehensive review.

$14B Available in Manufacturing Tax Credits

$14B Available in Manufacturing Tax Credits

There is a new bill that would put $14B in tax credits back into the pockets of manufacturers. What makes this bill unique amongst its predecessors is that manufacturers don’t have to wait around for this one to pass through its bureaucratic channels (or stall out in a constant state of delay and confusion).

Manufacturers can take advantage of this program before it passes. This is because a largely unknown version of the program already exists called the R&D Tax Credit. A temporary version is in place through the end of 2013 as part of the American Taxpayer Relief Act of 2012. So, manufacturers can actually begin receiving funds this year based on previous years activities.

5 Reasons Manufacturers are not taking advantage of the current version of this credit:

They don’t understand the IRS definition of R&D (see article: R&D I don’t think we do that!)
They believe their companies are too small
They believe the benefit won’t outweigh the work
They believe they have to change the way they operate in order to qualify
They believe that the credit is not being renewed

Not only will this credit most likely be renewed, but congress has continually made it easier to qualify and expanded the eligibility to include not only the Fortune 1000 but also small to mid sized firms who can utilize the credit to significantly affect their bottom line.

When working with manufacturers we ask two questions to determine qualification:

Are you expecting to be profitable this year, or were you profitable in any of the last 4 years?
Is your annual payroll for any of these years in excess of $1 million?

Since 2004 Growth Management Group has been educating and assisting Manufacturers and other Commercial Property Owners on their rights to programs buried deep within the tax code. To date, we’ve assisted small and mid sized companies discover over $300M in benefit. Contact us for a comprehensive review.

The #1 Lie About Cost Segregation

Cost Segregation on Older Buildings?

It is impossible for me to calculate the number of calls I’ve had with building owners and CPAs on the subject of Cost Segregation. Working some numbers in my head (ok, on my calculator), the number is likely well over 10,000. Out of all those calls there is one particular item that continues to rear its ugly, uninformed head and I can no longer stay silent. I must respond… with vigor!

The “item” in question comes in the form of the following quote, which I’ve heard too often to count:

“You can only do Cost Segregation on a new building or new renovation.”

I have no idea where this rumor started. I hear it weekly and now I am blogging in rebuttal.

First, I will say an unequivocal “Yes”, it is beneficial to have a Cost Segregation study done when you purchase/construct/renovate a new building. In fact, anyone constructing or renovating a commercial property should have a study completed. However, the true power of Cost Segregation is displayed on buildings that are not new!

“But, you can only do Cost Segregation on a new building or new renovation”.

To officially rebut this statement, I will go straight to the source. The first sentence in the IRS Cost Segregation Audit Techniques Guide – Chapter 6.2 reads:

[box style=”2″][googlefont font=”Sanchez” size=”16px”]”A taxpayer may conduct a cost segregation study on used property and then recompute its depreciation deductions for prior years”. *[/googlefont][/box]

Not only “may” a taxpayer do this but over 75% of our projects are older properties. In the industry we call this the “Catch Up” method, and it can produce powerful results.

Here is an example:

Mr. Client acquires a commercial property for $3,500,000 five years ago and never completed a Cost Segregation Study.

Despite rumors to the contrary, Mr. Client recognizes he may now have an opportunity to benefit from a study (maybe he read this blog post).

Mr. Client hires an expert (GMG for example), who identifies 20% ($700,000) of components that should have been allocated to 5-year life instead of 39 years. Mr. Client jumps for joy when he realizes the IRS will allow him to “catch up” $700,000 of missed accelerated depreciation on his next tax return!

Why doesn’t every building owner and CPA know this?

The answer is simple; it is not their area of expertise. Although some building owners and CPAs have substantial experience with Cost Segregation, most do not. There is a dearth of true educators in this field, which unfortunately leads to much misinformation. These factors have caused countless thousands of building owners to miss out on this powerful tax savings strategy.

All is not lost!

If you own a building and have not had a Cost Segregation study performed, you have not missed the boat. Hundreds of thousands, or even millions, of dollars in tax savings may be available to you. Now that you are aware, let’s see how much you qualify for! Contact Us today for more information.

* Full Link: http://www.irs.gov/Businesses/Cost-Segregation-ATG-Chapter-6-2-Change-in-Accounting-Method

Civil Engineering Firms Losing out on Millions

Flint Journal: Company Helping Find Stimulus Money, Tax Breaks for Local Businesses

FLINT, Michigan — A Flint company that helps local businesses qualify for government stimulus money is doing so well that it plans to hire about 100 employees in the next year.

Growth Management Group managing partner Ryan Maddock said the company, at G-3490 Miller Road, directs businesses to stimulus act provisions that have secured an average of $200,000 for establishments in Genesee County.

Rowe Professional Services Company is one company that has benefitted. Rowe Controller Douglas Kline said his company claimed tax breaks on its building, at 540 S. Saginaw St., provided through a cost segregation plan that “takes this big monster of a building and breaks it down into components.”

Depreciation on the building has been calculated and the company receives lower tax bills for years to come, Kline said. He could not provide specific figures on tax breaks for the $23 million project, calling the breaks “beneficial.”

Growth Management Group also found tax breaks during a research and development study for Rowe. Kline said tax law changes in 2009 allowed the company to refile its tax returns for 2006, 2007, 2008 and 2009, and it will do so for the 2010 tax year for some “very significant tax credits” on federal income tax returns.

The management group has worked “hand-in-hand” with Rowe’s accounting firm, and Kline said the business has been “really pleased with the results.”

Maddock said several of the breaks come through three main stimulus plans, including the Hiring Incentives to Restore Employment Act, which allows an employer to take a tax credit of up to $1,000 per worker hired between Feb. 3, 2010, and Jan. 1, 2011. The act also offers up to $250,000 for small businesses to write off equipment investments.

The Small Business Jobs Act has allowed more than 1 million companies to receive stimulus money, the biggest stimulus expansion since 1981, said Maddock, who pointed out that a stimulus act of some kind has been done every year in Michigan and nationwide since the early 1980s.

The SBJA, providing eight tax cuts and $30 billion in small-business lending, applies only to businesses that have $50 million or less in annual sales. Companies can apply for funds retroactively back to 2007.

A commercial property owner’s benefit is open to anyone who purchases a commercial property for $650,000 or up, or has done at least $250,000 in renovations within the past 20 years.

Lawrence Moon Funeral homes, with locations in Saginaw, Flint and Pontiac, has received such money. One of the misconceptions people have about the money, Maddock said, is that the benefits come “with a lot of strings attached.”

Business is going so well for Growth Management Group that it will move to the former Diplomat Pharmacy headquarters at the corner of Corunna and Elms roads in the next 45 days, Maddock said.

He said he hopes to add more than 100 Flint-area employees at the new location in the next 12 months, with positions in sales, customer service, law and engineering. Pay will range by position and experience.

Growth Management Group does charge for its services, between 10 and 33 percent of the benefit garnered. And while the funding is referred to as stimulus, Maddock said the laws are giving back to those who have invested in the community.

“This is a reward for work that you’ve already done,” Maddock said. “You are honestly getting some of your own money back.”

The above article was reposted from The Flint Journal.
Original Article By: Roberto Acosta

Who Qualifies for Tax Incentives and Stimulus Money?

We hear a lot about stimulus money these days. We hear who is getting it and what kind of positive things it is doing for the nation. Those stimulus dollars, however, should be working to benefit more local, small to mid-sized businesses. If you fall into this category, your money is likely going to someone else’s business; potentially your competition.

Wading through government forms, even on the simplest level, can be aggravating and time consuming. The idea of ‘free money’ from the government can also be a very scary prospect for skeptical investors and business owners. But there are people out there who have spent a great deal of time learning how these programs work to provide businesses with opportunities that can be extremely beneficial.

Ryan Maddock and Jeremy Harrison of Growth Management Group (GMG) lead a small but growing team of dedicated, positive and knowledgeable staff members that help business owners bridge the daunting gap between not having stimulus money and having it. These funds are not the same as grants which typically need to be used for ultra-specific purposes. Stimulus money can, in many cases, be used as discretionary funds. This frees up the business owner to use the funds as his or her vision sees fit whether it is for new software, equipment, tax offsets, etc. Manufacturing firms in the area, businesses in other states, hotels, restaurants such as Leo’s Coney Island and even Lawrence Moon Funeral Home have capitalized on stimulus money through GMG’s services.

There are currently four programs in full swing for a variety of businesses; manufacturing across the U.S. and in some cases Canada, commercial property owners who have purchased their property within the last twenty years, the HIRE act which pays employers that hire 25 new employees a year (that includes turnaround) and energy credits/energy incentives which is a program that will probably evolve further. Currently the Obama administration has set aside 60 billion dollars for renewable energy. While these programs do have other stipulations and guidelines, GMG has been successfully wading through paperwork for clients in 38 states. Ryan pointed out that stimulus funds have been around since the 1980’s. These programs usually morph into new programs over time and they’re not going anywhere.

If you’re wondering why you’ve not heard much about the eligibility for these funds that is simple to explain; the federal government isn’t always that great at advertising and marketing. As a result, ninety-two percent of companies that qualified for these funds last year didn’t access them and the eight percent that did, were larger companies who tend to have an easier time accessing these sorts of programs

Staying on top of the changes in federal programs is crucial to the success of the service offered by GMG. Fees are based on a percentage of funds obtained, not a flat or hourly rate which business owners have to come out of pocket for. And in many instances, the funds can be applied retroactively from as far back as 2006.

Worried about how your CPA feels about these “too good to be true” stimulus dollars? GMG works with local CPA firms so they understand the hesitancy that comes along with these types of government programs and are able to alleviate those fears. Do you feel a sense of malaise when it comes to paying taxes? There’s good news for you too. Since stimulus funds are made up of tax dollars, this might be your chance to cash in on all the money you’ve doled out over the years to upgrade your business.

See Full Article as Featured in Downtown Revival Magazine. Click Here

2012 Tax Incentives for Manufacturers

The U.S.’s tax system is uncompetitive and makes it difficult for manufacturers to stay competitive. Currently the United States has the number 1 Corporate Tax Rate. However, tax incentives and credits have been put in place that allow manufacturers to reinvest, create and retain jobs to become more competitive.

The National Association of Manufacturers advocates strongly on behalf of the manufacturing industry nationwide to renew and extend tax credits that directly affect your industry. According to their recent Statement to the Subcommittee on Select Revenue Measures dated June 8, 2012, “Renewing the tax extenders will provide a bridge of certainty and predictability for manufacturers.”

On Friday, August 3, 2012 the Senate Finance Committee approved the Family and Business Tax Cut Certainty Act. This act extends more than 40 programs including the R&D tax credit and the WOTC tax credit through 2013.

The U.S. offers some of the world’s richest tax incentives, but chances are your organization is not taking advantage of them and getting the cash you deserve. Working with an established cost recovery firm with it’s staff of engineers and attorneys specializing in tax and IP will maximize the credits you qualify for and, most importantly, provide a defense for those credits.

“R&D, I don’t think we do that!”

If, when you hear R&D, you think of people in lab coats tinkering with chemicals, ultra high tech industries and Fortune 500 companies, you are not alone. However, things have changed!

In 2001 the IRS changed the definition of R&D and the changes were so broad that it virtually encompasses all manufacturing or technology organization in some way.

Why is this? It’s because, by and large what do manufacturing companies do? They design new products, improve existing products, come up with new processes, or make improvements to existing processes used to make products. Most of these organizations don’t have an R&D department and probably don’t consider that what they are doing is “R&D”. They are making these improvements and changes because they MUST stay competitive and yet, as the government sees it, “R&D” is exactly what they are doing.

Here are some of the everyday activities that would qualify for the credit:

Designing the process to fabricate the metal to reduce shrinkage and increase its quality
Programming CNC machines
3D CAD Engineering with programs like SolidWorks
Developing and testing of prototypes
Quality assurance – First-piece quality inspections
Designing and developing of specialty tooling and fixtures
Considering alternative metals to develop the product
Considering different metal thicknesses
Developing engineering drawings
Developing weld procedures
Bending of metal (e.g. sheet metal) has to consider the stressing and stretching
Considering strength of final product for application (meets specifications)

So, the next obvious question is…”How do We get some money?” The IRS allows companies to go back three open tax years to take advantage of the credits they may have missed. (Nice of them isn’t it?) Just 120 days after submitting the amended returns, you can get cash in your pocket. Additionally, you can take credits for current and future years if you continue to perform activities that qualify for this credit.

To find out if your organization would qualify ask yourself a few questions:

Are you expecting to be profitable this year, or were you profitable in any of the last 4 years?
Is your average annual payroll for these years in excess of $1 million?
Is your company structure a C Corp, or an S Corp/Partnership?

If you answered yes to all of these items then you definitely need to have an R&D Tax Consulting firm take a look at your organization. You could potentially have a five-figure credit, even higher credits are available for organizations with higher payrolls.