CLIENT CASE STUDIES
Online Retailer Adds Overnight Sales Team
Recently we met with an online retailer of specialty safety equipment in Framingham. After reviewing their tax plan, we began to have a general discussion about the business as a whole. The owner spoke enthusiastically about his newly designed website, and was excited that when he and his team arrived to work each morning there were many inquiries from potential customers all over the globe waiting to be answered.
We asked if they ever considered training and staffing an over-night crew so these could be answered immediately, and if that would result in a higher closing rate. He had, but was concerned about cost, supervision and potential down time of the overnight employees. A quick calculation indicated the increased sales as a result of instant response time would far exceed the cost to staff the night shift. Further investigation found outside companies which could provide this service in a cost effective manner, with minimal management by the owner. Our client moved forward and saw marked improvement in turning the night time inquiries into sales. Sometimes engaging in a general business discussion can provide a new perspective and lead to a direct increase in sales!
Essential tax planning for cash basis companies
Recently we met with two established, successful companies in Metrowest Boston. During our discussions with each company’s owner it became obvious that they were not receiving proper tax planning advice from their current CPA firms. When we reviewed their prior year tax returns, we realized they were not pre-paying expenses despite being cash basis, not taking advantage of the potential deduction available through their retirement plans, and were leaving an excess of cash in the business triggering unnecessary state excise taxes. Simple tax planning could help both of these companies save thousands of dollars in taxes.
If you are a business owner, it is vital for you to be in touch with your CPA during the last few months of the year to ensure you are doing everything possible to minimize your tax liability.
Doctor uses cost segregation for optimal depreciation
Paresky Flitt & Company, LLP recently helped a Wayland, MA doctor save tax dollars on a building she constructed. Typically, new construction is depreciated over 39 years, but there are certain items which can be depreciated over a much shorter time period. Paresky Flitt, our client, and her contractor worked together to generate a cost segregation study. We educated the client and contractor on the allowable period for the different elements of the construction. The contractor could then itemize his invoice to split out the costs of the different components of the project to make sure we could deduct the building in the most beneficial method possible. The contractor showed separately the cost of the items eligible for an accelerated depreciation deduction which allowed our client the necessary documentation to support her position. We recommend that this be done prior to construction, as it is easier to identify the specific costs.
Dental practice saves $100,000 by moving into purchased building early
Paresky Flitt & Company, LLP in Wayland, MA recently helped a dental practice in Rhode Island obtain a substantial tax deduction in 2014 for a building that they didn’t actually buy until 2015. The client acquired $250,000 of brand new equipment but was ineligible for the deduction until they occupied the building and used it for their dental practice. With the closing scheduled for January 2015, it appeared they would have to wait until 2015 for the equipment write off.
We came up with a simple suggestion, which allowed the deduction to occur in 2014. Knowing there was no way to accelerate the closing on the sale of the building, we suggested our client move into the building in December 2014. They agreed with the seller to occupy the space as a tenant at will for the last 10 days of December and until the closing in January. This allowed them to open the office in December 2014, begin using the equipment, and qualify for the deduction in 2014. The savings from doing this was approximately $100,000.
LLC converts to S Corp to avoid $160,000 Medicare tax
Paresky Flitt & Company, LLP in Wayland, MA has worked with a very profitable single member LLC located in Chicago for many years. Due to recent tax law changes, brought about by the Affordable Care ACT (ACA) they were now subject an additional tax of 3.8% on all of their self-employment income. Due to the income level of this client this was a substantial amount of money.
By changing their tax status from an LLC to an S Corporation, we were able to save approximately $160,000 per year in federal income taxes. This is because S Corporation income is not considered self-employment income, therefore saving the self-employment tax and additional Medicare tax.
helped two greater Boston area non-profit organizations save substantial money in accounting fees
Paresky Flitt & Company, LLP recently helped two non-profit organizations in the greater Boston area save substantial money in accounting fees by requesting a waiver of certain state filings.
The non-profits, based in Natick and Boston, both grew their revenue above thresholds which triggered a change in their reporting requirements. Massachusetts has a rule that any charitable organization whose gross revenue exceeds $500,000 must submit an audited financial statement. Organizations whose revenue is between $200,000 -$500,000 must submit a reviewed financial statement, a lower level of attestation.
What most non-profit organizations do not realize is that the first time they reach the $200,000 or $500,000 thresholds, the state may waive the requirement if the not-for-profit submits a waiver request in writing.
For each client we wrote a letter to the Attorney General’s office, explaining the situation along with some specific details about the organization’s financials and operations. The state waived the requirement for both organizations for that year.
The end result was both clients saved substantial accounting fees and are better prepared to budget for their accounting fees in the following year. Beware though, this is a one-time waiver. In future years, both organizations will need to submit the audited/reviewed financial statements.
Framingham company gets help with IRS audit
Recently Paresky Flitt & Company helped a Framingham business who had received a notice from the IRS that they were being audited.
We advised the company’s owners to allow us to represent them in the audit. We obtained a Power of Attorney, and contacted the IRS directly on the client’s behalf. The IRS agent conducted the audit at our Wayland office instead of at the client’s site, so that we could answer any questions that arose. In advance of the audit, we streamlined the required documentation (much of which already we had in our files) to ensure the IRS agent had everything they needed, right from the first day. This allowed the agent to work efficiently and close the audit in less time. After seeing that everything was accounted for and in order, our client received a ‘No Change’ verdict from the IRS.
Having Paresky Flitt represent the company during the audit allowed the business owners to continue their work with minimal interruptions and to take away a lot of the stress that comes with an audit. As CPAs, we have experience handling tax audits and are better prepared than a typical business owner to deal with the IRS. Allow us to use our experience to help you should you find yourself in this predicament.