December 2014 Newsletter
The Fat Lady Hummeth…
The recovery for the Construction industry has been “cautiously optimistic” for the last three years.
Do you believe the recession is truly over? Is the very gradual increase in Construction starts a true indicator of how bad things are, despite optimistic predictions? Or is it a deliberately crafted conservative industry strategy — to create a slow and deliberate progression towards construction stability?
Pundits say the recession is (barely) behind us. Read on to see trends and indicators that may leave you gasping for breath or sighing in relief!
2015 Construction Forecast from the Experts
by Joanie Hollabaugh
The CMD Group (formerly Reed Construction Data), McGraw-Hill Construction, the Associated Builders and Contractors (ABC) group, Moody’s and a few other construction/financial industry experts have shared their predictions for 2015. (Click on the chart and scroll through tabs to see each agency’s details of 2013 Actuals and 2014 and 15’s forecasted percentages of changes.)
The Tipping Point
CMD recently held its 6th annual economic forecast entitled, “Is the Pace of Construction Investment Set to Quicken?” Expert speakers included Chief Economists, Alex Carrick of CMD, Ken Simonson of Associated General Contractors of America (AGCA), and Kermit Baker of American Institute of Architects (AIA).
While the three pundits presented different data points (i.e., architectural billings, unemployment levels, building starts, and active sectors, etc.) all agreed that May of 2014 was when leading indicators pointed to a positive growth for the second half of 2014.
Kermit Baker’s 2014 review:
“While the broader economy and the construction sector got off to a slow start this year and forecasters have lowered their 2014 targets, they remain upbeat about next year.”
To loosely paraphrase, severe weather last winter was responsible for a sluggish start to ‘14, but didn’t seem to permanently dampen hopes for an improved Q2 and second half of 2014. To summarize, the Residential (starts) outlook was “solid” but the Commercial sector is still in recovery, and the Institutional market is still “poised to recover but remains stalled.”
Alex Carrick’s 2014 review:
“By the end of 2014, the total number of jobs in the architectural and engineering design professions will recover to their pre-recession peak,” stated Alex Carrick, U.S. chief economist for CMD. “The year-over-year employment gain in the sector has been a strong, plus 4 percent. This is good news for on-site activity levels, since new projects appear on drawing boards first.”
Looking Ahead to 2015
Helbling Associates’ blog recapped the experts’ forecasts for next year:
Carrick projects an increase in construction starts for the next four years, and believes spending on lodging, hospitals/clinics, and warehouses will almost double from 2013 numbers.
Simonson notes warehouses, lodging, manufacturing, oil and gas fields, pipelines, rail, and data centers as markets to watch. He also forecasts a 6% to 10% annual increase in total construction spending through 2017.
While Baker concedes that the Architecture Billings Index has shown volatility, the industry is seeing a strong comeback. According to AIA’s new design contracts index, billings will continue to accelerate.
The Fly in the Ointment
While we are all drawing a sigh of relief at putting the Great Recession behind us, there is one major drawback: a labor shortage. A survey by AGC showed that more than 80% of respondents reported “difficulty” in filling certain positions; while Manpower reports that the hardest jobs to fill are skilled labor trades (bricklayers, carpenters, electricians, etc.). Much of the workforce during the housing boom have moved on to other professions, literally to put food on the table.
At the End of the
Don’t quote us, but it sounds like 2015 is going finally show signs of growth via all the indicators used to predict growth. It is, however, still an opinion (which we heartily endorse). The big question is – how will you handle the increase of business and the downsize of staff? Let Ledgerwood Associates help you in any way we can! Whether it’s additional training, licenses, or new software products – we have ridden this wave with you – and we ARE the experts in construction and project management. Let us know what we can do for you!
Want to weigh in? Comment in the Ledgerwood Associates LinkedIn Group for clients and friends.
Click the image for more info or to order! NEW on this offer – more third-party products are included than ever before, including MyAssistant, Office Connector, and the TWO NEW Sage modules – Sage Paperless Environment and Sage Payment Solutions.
The Transaction Privilege Tax (TPT)
Apples-versus-Oranges in Arizona
As defined by the Arizona Department of Revenue: The Arizona transaction privilege tax is commonly referred to as a sales tax; however, the tax is on the privilege of doing business in Arizona and is not a true sales tax. Although the transaction privilege tax is usually passed on to the consumer, it is actually a tax on the vendor.
On November 18th this year, the Department of Revenue (DOR) issued TPN 14-1 with the intention of clearing up a number of questions regarding the Transaction Privilege Tax. While the document does a good job defining Contractors, Sub-Contractors, maintenance, repair, replacement and alteration activities, the various scenarios presented were rather confusing for the Construction industry as a whole.
The Valley of the Sun CFMA took on the TPT at a special lunch meeting in November. In an effort to clarify some of the entanglements of the legislation, they provided some scenarios that addressed the taxable/non-taxable issues:
Scenario: A business that sells sheds for a single lump‐sum price provides the sheds to customers through a subcontractor that delivers and installs the sheds on customers’ sites. The subcontractor either delivers and installs a prefabricated shed or assembles and installs it onsite. In either case, the shed will be installed on a concrete pad or piers.
Result: If there is no preexisting concrete pad or piers at the customer’s site, the sale and installation of the shed will be subject to prime contracting TPT, with the setup site as the taxable situs under A.R.S. § 42‐5075(M)(1). If the subcontractor installs the shed on an existing pad or piers, however, the installation will constitute a nontaxable alteration activity, and retail TPT will be due on the sale of the prefabricated shed or materials.
Translation: Pour your own slab unless you want to be taxed and taxed again!
Clear as Mud?
Now, demolition and debris removal is subject to a 15% test to determine if an entire contract is subject to TPT. Even more confusing is the treatment of Change Orders. Under the “clarification rules”, each change order needs to be treated separately from the original contract to determine if the change order is subject to TPT. To add to the confusion, if the change order includes any demolition and debris removal, the de minimis test must be applied to EACH change order for the 15% threshold which decides TPT taxable or non-taxable, for that change order only!
Materials are another story, depending on whether you purchased them for taxable modification activities or non-taxable maintenance, repair, replacement or alteration activities. If you are using the same materials for the TPT taxable AND non-taxable activities, you need to keep a list of materials on hand as of 1/1/15 and report the retail TPT tax on them if you use them in non-taxable activities.
Estimating in the new environment will be WAY more difficult than previously. In addition to the determining jurisdictional taxes, and material taxes, estimators will also need to determine the demolition and debris removal threshold and the tax implication! If everyone bidding on a project interprets the notice and the law the same way, the playing field will be level; if not, bids will be apples and oranges!
Sage Support for Year End
Supported Versions for Year-End 2014
For the upcoming 2014 Year-End, we will be supporting Sage 300 Construction and Real Estate versions 13.1 and 14.1 (coming summer 2014). For up-to-date information on the supported Year-End versions log in to the Knowledgebase and search for article ID 33168.
Reminder on Microsoft Windows XP and Server 2003 Retirement
Microsoft stopped providing mainstream support for Microsoft Windows XP in 2009 and has only provided “extended” support since. Extended support for Microsoft Windows XP will be discontinued in April 2014. Microsoft also announced that they will discontinue extended support for Microsoft Windows Server 2003 in July 2015.
End of Microsoft support for these operating systems prevents Sage from receiving support from Microsoft Development. Consequently, Sage will not continue to develop or test new versions of our software on Windows XP and Windows Server 2003 platforms.
For more information on the Microsoft Windows XP and Server 2003 support retirement log in to the Knowledgebase and search for article ID 33176.
Sage 100 Contractor
Sage 300 Construction and Real Estate
When you need assistance, refer to the following articles to determine which support service works best for you:
What’s New in Sage 300 CRE Version 14.1? Tons!
- Checklists with the timing of tasks for different areas like AP and Payroll.
- A snazzy new landing page that lets you initiate a chat session (with a real, live person!)
- Articles to help you close your year out on a strong note, with minimal disruption.
- Links to forums where you can ask questions of your peers or read existing discussions.
Check out this short video with ALL of the new features and benefits:
New from LAI – Sage CRM
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Want Sage CRM or other Software (or modules) in 2014?
Cash in the $25,000 TAX DEDUCTION in SECTION 179!
REVISED SCHEDULE for Year End Training Classes:
We know you’re busy, right? So this year, we are going to deliver to YOUR schedule – when you need to do them!
We will host a two-part ONLINE Year End Class, with one session in December (what you need to do with Payroll) and the other in January (remaining YE activities for GL, AR/AP, etc.,); and a separate Archiving Class in February. Pick the sessions that you want, and GET MORE DONE with your time.
*** No onsite classroom training will be held – all training will be online! ***
Time to Update to V 19!
Submitted by Walt Mathieson, Certified Sage 100 Consultant
Critical Version Information!
All users should plan on updating their Sage 100 Contractor program version to Version 19. Sage has advised that they will not support Versions 18 and earlier. Specifically, the Aatrix Tax Filing capabilities will not produce documents (think W-2s and 1099s) suitable for filing with Versions 18 and earlier. The program will likely produce documents, but they will be printed with a DRAFT watermark that makes them unsuitable for filing.
Version 19.5 will be available for download to users with current support contracts in mid-December. This version will contain the latest Federal and State Income Tax Withholding Tables for 2015 and will include capabilities to assist with compliance with the Affordable Care Act. DO NOT install this update until after you have completed all your 2014 payroll entries and closed your payroll year.
Year End Closing
Last month, I wrote about things that users can do to prepare for year end, particularly for preparation of W-2s and 1099s. There is still time to continue with your preparations, but now I want to talk about what users should do at the end of December. With the functionalities added in Version 19, the tasks that must be done at the end of December are significantly fewer than were required in earlier versions of the program.
The only thing a user must do at the end of December in Version 19 is close the payroll year. Payroll must be closed only after the last payroll record for 2014 is entered, computed, printed and posted and before any payroll record for 2015 is entered in menu 5-2-2. Payroll data entered in 5-5-1 Daily Payroll or 6-11-6 Daily Field Reports or 11-2 Service Work Orders/Invoices/Credits will survive the Close Payroll Year process and be available for 2015 Payroll processing, but any entries in 5-2-2 Payroll Records will be removed during the Close Payroll Year process.
Follow the Year-End Checklists document found in the Product Documentation area of the dropdown menu of the Home and Resources Activity Center. I strongly encourage users to read through the document and then follow the check list in the order specified. And above all else, BACK UP your data folder before you start!
Be aware that the Maximum Wages subject to FICA (Social Security) Tax in 2015 is $118,500, up from $117,000 in 2014. While the Version 19.5 update will update the Federal and State Income Tax Withholding tables, users are expected to update their FICA, FUTA, and State Unemployment payroll calculations and push the updated data to all employees.
Other than making sure your data is shipshape, there is little that needs to be done at the end of December for 1099s or your fiscal year end closing. The 1099s should be processed and printed or E-Filed during January 2015, and your fiscal year end data should not be archived until all entries are made and finalized for 2014 and your balances tied back to published financial statements and tax returns.
Submitted by Kyle Zeigler, Sage Senior Certified Consultant
December is a busy month for Sage 300 Construction and Real Estate users even if 12/31 is not the end of your fiscal year. To help make things smoother, we want to be sure you have the top list of the things you should know about and plan for in next few weeks:
1. Update Your Software to Supported Versions
The 2014 year-end update will be released in mid-December and will only support versions 13.1 and 14.1. If you use Sage 300 CRE Accounts Payable or Payroll and are operating a version earlier than 13.1, Sage recommends that you upgrade to version 13.1 before installing the year-end software update.
If you need to upgrade your software, schedule your LAI Sage 300 CRE consultant now! This is our busiest time of year and we may not be able to meet your scheduling preferences if you wait to contact us.
When the year-end update is released, Sage will email you a download link and a link to the 2014 Year End Procedures and Government Forms Guides. Determine who in your organization receives this email so that you can watch for it. If you are going to install the update yourself, read the guides before starting the installation! If you plan to have a consultant assist you, schedule the consultant now.
2. Install the Payroll Tax Update
If you use Sage 300 CRE Payroll, a separate email will be sent by Sage to notify you when the payroll tax update is ready. Do not update payroll taxes for 2015 until after your last 2014 payroll is completed, and then be sure to update taxes before processing the first payroll in 2015.
3. Make Sure You’re Receiving Important Emails from Sage
If you are not receiving emails from Sage, contact Sage immediately. If your Sage Customer Care plan has expired, you will need to renew it in order to receive the year-end update and payroll tax update.
4. Plan on Needing Help!
Identify your resources ahead of time! Technical assistance can be obtained from your consultant or from Sage Support (review your customer care plan first). New for this year is the Year End Center on the Sage City Online Community website.
Wishing you all a smooth transition into the New Year and the happiest holiday season!
Five Practical Ideas for Year-End Planning
Submitted by Rick Kratz, CPA
Year-end planning has been fairly easy – even unnecessary – for the past several years, since most businesses have experienced losses or relatively low profits. However, 2014 has been much more profitable for many companies, which means that your 2014 tax bill may cause “heart failure” when the amount is dramatically more than it has been for the past three to five years. The shock could be even greater if the amount is unknown until your tax returns or extensions are filed in March or April of 2015.
The most important things that a business owner can do to prevent income tax shock are:
- As a basis for estimating your 2014 income taxes, prepare a detailed projection of what you believe your business income will be for 2014. This means starting with accurate, up-to-date information through at least the third quarter of 2014. The more current and accurate the historical starting point is, the more accurate your projection will be. (If your accounting information is not yet available through the third quarter, you likely have bigger problems!)
- The purchases and sales of fixed assets can have a dramatic impact on taxable income; however, these transactions are often posted to asset accounts during the year and their effect on the bottom line is hidden until after year-end. To avoid surprises in this area, assemble all the information needed to update your depreciation schedule for the 2014 activity. This includes gathering information on 2014 acquisitions of property, equipment, vehicles etc., plus information on acquisitions you intend to make before year-end. You will also need to gather information on disposals made during 2014. Once the information is assembled, it should be provided to your tax accountant so that your depreciation schedule can be updated.
- If you had a tax liability for 2013, you likely were advised to pay quarterly estimates during 2014 for your 2014 taxes. (This would be true for corporations, LLCs, and partnerships.) If you were advised to pay estimates, but did not pay the estimates, you might be exposed to penalties, in addition to having an even larger liability due at year-end. Determine how much you have actually paid thus far and when you made the payments. Provide this information to your tax accountant.
- Make an appointment with your tax advisor so an estimate can be made of your tax liability. You may be tempted to make the computation yourself and avoid the extra accounting fees, but resist that temptation! One of the things that can cause a major tax shock is the effect of alternative minimum tax. It is nearly impossible to determine the impact of alternative minimum tax without the consideration of all other tax factors and sophisticated tax preparation software. You may also have items carried over from prior years, such as net operating loss carryovers and alternative minimum tax credits. You may also have items that are treated differently for tax than for book purposes. Again, it is difficult for someone who is not a tax professional to accurately determine the effect of such things on your taxes.
- For income tax purposes, many businesses are what are known as “pass through entities”. This means the taxable income of the business passes through to the individual owners and is reported on their personal income tax returns. Therefore, the business does not pay income taxes and the tax projection will be that of the individual owners. Consequently, significant changes in factors pertaining to the individual can have a significant impact on the tax projection. You will want to inform your tax advisors about and significant changes occurring during 2014, such as:
- Increases in wages
- Increases in investment income
- Investments in other pass-through entities
- Investments in rental properties
Your professional tax advisor will likely have additional recommendations that are tailored to fit your unique circumstances. Don’t procrastinate!
Rick J. Kratz, CPA
Pittman & Murdough, CPAs
Would you like a copy of our newsletter in PDF format? Email Joanie@ledgerwoodassociatesusa.com and we will email it to you!