Archive for the ‘Construction’ Category

U.S. Manufacturing and Construction Sectors Extend Gains

January 6, 2014

Via Reuters

The Institute for Supply Management’s index of national factory activity, a key gauge of U.S. manufacturing, hit its highest point in November since April 2011, with a reading at 57.3, up from 56.4 in October. Meanwhile, the Commerce Department reported a 0.8% rise in construction spending in October, hitting the highest annual rate since May 2009. Both figures reinforced recent data pointing to continued U.S. recovery.

A Construction Surety Bond Program – Are you ready and can you prove it?

May 30, 2013

By Jon Fosburg – Reed Surety

Contractors face widespread bonding requirements today. Contractors performing work for federal, state, county or municipal entities will be required to post a bond. With tighter budgets governing projects everywhere, owners want stronger protection against contractor default.

Some construction companies face the challenge of establishing a surety line from scratch, while others seek to maintain or increase their limits. Regardless, every contractor should be aware of the critical factors that affect whether or not you get bond credit.

CPA prepared financial statements – To secure or increase your bond capacity rests primarily on the results posted in your company’s financial statements and these statements must be prepared on an accrual, percentage of completion basis. Surety companies take a hard look at a contractor’s net worth and working capital. They generally discount assets that are not easily converted to cash such as aged receivables older than 90 days and inventory. Sureties also look at how assets are allocated. A contractor may show a strong bottom line, but if its working capital consists almost entirely of equipment and fixed assets, can it really fund a job? If such a company’s cash and credit line were to dry up, it couldn’t simply sell equipment to pay wages and other job costs, because then it couldn’t do the job at all. That’s why a surety company likes to see contractors with strong working capital (defined as current assets minus current liabilities). Current assets include cash, receivables under 90 days and some inventory, assets that can likely be turned into cash within a year as opposed to property, plant, equipment and other long-term resources. Working capital gauges a firm’s ability to finance its operations and indicates the level of protection creditors and surety companies can expect when they underwrite the firm’s operations.

Company information – What’s the largest job your company has completed, has there ever been a claim, what accounting system do you use, resumes of your team, who’s your CPA? These are just several questions that are covered on a contractor’s questionnaire. The more complete your information is to the surety underwriter, the fewer roadblocks you’ll encounter in securing bond credit.

Banking  – Sureties will look for good banking relationships and balances. A bank line of credit is always helpful and it is becoming more of a requirement for larger programs. Have a bank reference letter ready to submit in the underwriting package.

Work in Progress (WIP) – The importance of a WIP report cannot be overemphasized. Typically a WIP is included in the year-end financial statement, however consistent reporting of a WIP to the surety will produce benefits. The WIP report is perhaps the most important report a contractor has to manage the profitability of the jobs it has in the backlog. In securing and maintaining your bond program, sureties will closely examine your WIP report.

For more information or assistance with your surety bonding needs, please contact Jon Fosburg of Reed Surety.

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Economic Forecast – 2013

January 29, 2013

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This morning, several members of Nienow & Tierney, LLP had the opportunity to attend the 14th Annual Economic Forecast Breakfast sponsored by the OC Chapter of California Society of CPA’s.  The speaker for the morning was Dr. Esmael Adibi from the Anderson Center for Economic Research at Chapman University.

Dr. Adibi presented a forecast of cautious and slow growth for 2013.  He expects the GDP for the United States to increase by 2.1% in 2013.  This was following a 2.4% increase in 2012.

Dr Adibi also indicated that he expects consumer spending to increase by 1.8% in the United States for 2013.

In California, Dr. Adibi projects about 225,000 new jobs being produced and with 25,000 of those occurring in Orange County.   He also estimated that housing prices will increase by 6.8% in California.

It was a pleasure to hear Dr. Adibi’s forecast and we hope for an above average increase to our clients in 2013.

Anaheim Enterprise Zone Credits

December 11, 2012

 

On February 1, 2012, the State of California designated the City of Anaheim as eligible to receive Enterprise Zone Credits.

These credits provide tax incentives to businesses that are located in the specified Enterprise Zones.  There are currently 42  zones located in the State of California.  This program was established in 1984 to stimulate the economy in several depressed areas.

Anaheim will receive the designation for 15 years (through January 31, 2027).

There are several ways to receive the tax incentives.

1. Hiring Tax Credits – Businesses located within the Enterprise Zone that hire qualified individuals can earn up to $37,440 in state credits for each qualified employee hired.  These credits can be used to directly offset state income tax and can be carried over until used up.

2.  Sales Tax Credit – Companies can earn sales tax credits on the purchase of machinery and equipment.  The business will receive a state tax credit equal to the sales or use tax paid on up to $20 million per year of equipment purchased.

3. Interest Deduction – Lenders that loan money to businesses located in the Enterprise Zone are not taxed on the net interest income earned on the loan.  This can save of thousands of dollars in tax each year.

To find out if your business is located in the Anaheim Enterprise Zone, please click the following link.

www.anaheimchamber.org/anaheimez/boundaries.asp

If you would like more information about Enterprise Zone credits or to find out if your business is located in one of the 42 zones, please contact our office at (714) 836-8300.

Job Costing Basics

September 25, 2012

Proper job costing is essential for any construction company and is one of the most effective tools for accurately determining the actual cost of jobs performed.  Job costing allows for proper analysis of jobs performed and can help companies remain profitable. It gives contactors the information needed to properly bid on potential jobs.

What is Job Costing?

Job costing is a system that accounts for billings, revenues, direct costs and indirect costs of a company’s operations, and applies them to each specific job undertaken.  Applying billings and direct costs to jobs is a standard practice and is easy to compute.  The indirect costs are the key to really effective job costing.

Job Costing Basics

First, billings, direct expenses, and direct labor are tracked and applied to each specific job in progress.  Direct labor can be identified to jobs based on time sheets.  All modern accounting software (including Quickbooks) should allow for the tracking of direct costs and labor by job.  The next step is to apply the indirect costs of a company, or “burden” (rent, indirect wages, insurance, etc…).  This is where it can get tricky.  There are many ways to allocate indirect costs to each job, but the most common is to allocate indirect costs based on the direct labor incurred on a particular job.  In order to calculate this “burden rate”, it is common to calculate the average indirect costs as a percentage of direct labor for a company for a representative period, such as the prior three years.  Then, at the time of each payroll run, indirect costs should be allocated to jobs based on this calculated “burden rate”. With the resulting job costing information, the amount of revenue to be recognized for the period under the percentage of completion method of accounting can now be determined.

Why Use Job Costing?

When it comes to job costing there are many benefits to be realized.  The percentage of completion method of accounting is required for contractors under General Accepted Accounting Principles, and job costing is necessary for the calculations.  Job costing is also often required by bonding companies. The practical benefit of job costing is that it allows a company better analysis of each job undertaken.

Basic job costing is a must for all construction contractors.  It can be an intimidating job to tackle, but with a basic understanding of the principles of job costing, anyone can do it.

Build-to-Suit Construction Adds Complexity to Lease Accounting

June 4, 2012

Companies that undertake construction projects in conjunction with leases should be careful of the accounting effects, PricewaterhouseCoopers’ Chad Soares says. Certain projects must be included as an asset on a lease-holder’s balance sheet, depending on how involved it is with the project. "If a lease involves an asset that will be constructed, special rules exist," Soares says.

During a recent webcast covering a variety of accounting issues, PwC Partner Chad Soares reminded companies that there are unpleasant balance sheet implications to beware when entering into build-to-suit lease agreements.

Further details are available on this article posted on Compliance Week.

Payroll Tax Cut Extended

February 20, 2012

The House and Senate voted on Friday to extend the payroll tax cut and unemployment benefits, while avoiding a Medicare fee cut for doctors for the rest of the year.  The Middle Class Tax Relief and Job Creation Act will extend the reduced Social Security tax rate through the end of the year. 

President Obama has promised to sign the legislation which means Americans will continue to receive bigger paychecks through the rest of the year.

The extension of the payroll tax cut is estimated to cost $93 billion in revenue over the next two years, however, the act raises revenue through an auction of the spectrum of public airwaves, currently reserved for television, to allow for more wireless Internet systems.  The auctions are projected to raise $15 billion.

The act also repeals earlier-enacted shifts in the timing of corporate estimated tax payments.

President Obama’s 2013 Budget Proposal Includes Many Tax Reform Provisions

February 14, 2012

On Monday, President Barack Obama unveiled his proposed fiscal year 2013 budget. The proposed $3.8 trillion budget emphasizes creating jobs while backing away from further spending cuts. He called for increased spending for job training, community colleges, research and development, and infrastructure, saying the nation "can’t cut our way to growth." Obama abandoned his promise to cut the deficit in half by the end of his first term.

Additionally, the budget is full of specific tax proposals, and five principles for tax reform:

  1. Simplify the Internal Revenue Code and lower tax rates;
  2. Reform inefficient and unfair tax breaks;
  3. Decrease the deficit and protect progressivity;
  4. Increase job creation and growth; and
  5. Observe the “Buffett Rule.”

The budget defines the “Buffet Rule” as: “No household making over $1 million annually should pay a smaller share of its income in taxes than middle class families pay”.  It’s name comes from the famous comments of Warren Buffet observing that he pays a lower effective tax rate than his secretary.  The reason being of course, is his income is derived mostly from capital gains, which are taxed at a lower tax rate to incentivize investment in the economy.  The budget proposal would replace the current alternative minimum tax with the “Buffet Rule”, and allow certain 2001 and 2003 tax cuts to expire.

The budget would also repeal the LIFO method of accounting for inventories.

Other proposed changes include:

    • Reinstate the limitation on itemized deductions for upper-income taxpayers;
    • Reinstate the personal exemption phaseout for upper-income taxpayers;
    • Tax qualified dividends as ordinary income for upper-income taxpayers;
    • Tax net long-term capital gains at a 20% rate for upper-income taxpayers;
    • Cap the value of itemized deductions;
    • Tax carried interests as ordinary income

The list of potential tax changes is lengthy, and the Journal of Accountancy has prepared a great in-depth analysis in their article here.

We will continue to monitor these proposals as they progress through the government.

2012 OC Economic Forecast

February 8, 2012

On January 24th, Dr. Esmael Adibi presented the 2012 Economic Forecast at the California Society of CPA’s event in Orange County.  Dr. Adibi is the director of the A. Gary Anderson Center for Economic Research at Chapman University. 

His presentation projected a positive but small growth in the economy in 2012 and mild improvements in consumer spending. 

One of the main area’s that Dr. Adibi focused on was job growth.  He indicated that it is taking so much longer for our country to break out of the recession because there is less job creation than at the end of previous recessions.  There have been 11 recessions in the US since World War II and this recession is one of the longest because there are no new jobs to boost the economy.  He mentioned that presidents are irrelevant when it comes to our economic growth but new jobs are the key. 

Dr. Adibi projected mild increases in auto sales and consumer spending in 2012.  One encouraging sign for the US is that Canada and Mexico are both growing.  These countries are the leading export for the US.

Dr. Adibi concluded that consumer’s personal income should rise by 5.4% in 2012 but that the housing market will still remain flat with only a .2% increase in the current year.

Worker Classification Becoming Major Tax Administration Issue

January 27, 2012

Between the recent voluntary classification settlement program introduced by the Internal Revenue Service, a memorandum of understanding between the IRS and the Department of Labor to share employment tax data, and the president’s proposed economic growth plan, misclassification of workers and independent contractors has been receiving a lot of attention in Washington.

Additionally, as previously reported on our blog here, the State of California has enacted new reporting requirements as well as new fines and penalties for failure to comply.

Learn more about the latest issues related to worker classification issues in this Tax Advisor article.