October 2014 Newsletter
(Mise en Place is a French phrase which means “putting in place”, as in set up. It is used in professional kitchens to refer to organizing and arranging the ingredients (e.g., cuts of meat, relishes, sauces, par-cooked items, spices, freshly chopped vegetables, and other components) that a cook will require for the menu items that are expected to be prepared during a shift. – Wikipedia)
Like a good chef preparing for a successful service, you can prepare for a smooth Year End by collecting all the components you need to “get cooking!”
Don’t Get “Chopped!”
Prepare like a Pro and take advantage of savings/specials and learning links or classes from LAI!
- Add a Sous-Chef! Sage’s annual Add Users or Modules sale (now through December 26th) is like an extra, expert set of hands prepping YE (call LAI office at 480-423-8300 for more details on the special):
1 Add On /Add Use Module 5% discount
2 Add On/Add Use Modules 10% discount
3+ Add On/Add Use Modules 15% discount
- Order the tools you need – 25% off Sage compatible Tax Forms until November 7th! Order direct from Sage at 800-617-3224 or online. Mention promo code 14X2318511.
- Bone up on the ACA reporting requirements for companies employing 50 or more.
- Sign up for an online EOY prep class on December 11th. Choose a morning (9am) or afternoon (1pm) session.
- Take advantage of the $25,000 Section 179 deduction for software. (This would be a great time to add the Sage Fixed Assets module!)
Is Design-Build Obsolete?
by Joanie Hollabaugh
As the Construction industry is being revolutionized by 3D printing, drones, and container construction trends, one wonders – what will happen to the project delivery status quo?
The industry, as a whole, has turned towards the Design-Build (DB) type of team-oriented project delivery, with a single source of accountability – the DB contractor.
Proponents of this method can be summarized with three words “faster, smarter, cheaper;” while detractors claim that the elimination of the bid process threatens healthy competitive silos, and the lack of detailed, approved construction drawings increases risk and liability.
There are many in the industry who feel that DB has gone by the wayside, as owners have discovered that architects and engineers don’t always have the owners’ best interest (and wallet) in mind, nor are they necessarily experts in how to execute the actual construction of a project. An article on AIA’s website supports that sentiment, “Team based delivery has changed – and continues to change – the role of architects, engineers, contractors and developers. While contractors and developers have been quick to adapt to team based project delivery, taking on leadership of Design-Build (DB) many architects and engineers have “buried their heads in the sand” hoping the good old days of architect and/or engineer leadership of traditional Design-Bid-Build project delivery will return. Those days are gone forever!”
“New and Improved” DB – Meet the IPD!
Another type of project delivery is emerging as the front-runner for adapting to economic conditions and technology trends for construction – the Integrated Project Delivery (IPD). Another team-based process, IPD “requires organization of a team sharing risks and rewards – early on in a project – to be effective.” AIA article author, Martin Sell, AIA, goes on to describe the concept:
In its purest form, an IPD project team is assembled very early in the planning process. An IPD team may be broad and diverse, including architects, a variety of engineers including environments, soils, civil, structural, HVAC, plumbing and fire protection, as well as interior designers, lighting designers, construction managers, estimators, audio/visual specialists, acousticians, furnishing specialists, artists, financial planners, material suppliers, contractors, vendors – as well as a variety of disciplines from within an Owner’s organization. This can be a very diverse team; a team that can be very dysfunctional if not properly organized, managed and glued together.
The success of DB teaches us that integrated design and construction can provide a project less expensively, quicker, with better quality and sustainability, than projects built using the traditional process.”
The AIA has published out a guide to IPD (download link here), and endorses it thusly, “Integrated Project Delivery (IPD) leverages early contributions of knowledge and expertise through the utilization of new technologies, allowing all team members to better realize their highest potentials while expanding the value they provide throughout the project lifecycle.”
Everybody in the Risk Pool!
This begs the question in my mind – with such a collaborative process, how do you share liability and allocate risk among all the parties? Further research led to a Construction Advisory Report, by Construction Attorney, Roland Nickels, which explains the fundamentals (our bolded text):
IPD agreements present a fundamental break from the way parties on construction projects have traditionally allocated risk. Agreements in traditional delivery systems like design-bid-build, multiple-prime contracting, construction management (in various guises), and design-build, strive to draw clear lines between the parties and their legal responsibilities, thus allocating the risks and rewards for each project participant as clearly as possible. Traditional contracting models thus make it possible to sort out who should pay the piper when projects are delayed and costs increase unexpectedly. It has been noted that this tends to naturally pit project participants against each other and that sorting out legal responsibility is expensive. When disputes do occur, matters are complicated by the fact that litigation outcomes are infamously uncertain. By contrast, IPD agreements blur responsibilities for the scope of work, and they shift the allocation of risk away from the courts to a no-fault sharing of cost overruns on a pre-determined basis.
The core of an IPD agreement is one agreement executed by the owner, the architect, and contractor. These parties are involved in the project earlier, and in the case of the owner and contractor, more actively than in traditional delivery models. The contractor and key subcontractors are actively involved during the design process. If BIM is used, they may provide input directly into the model during design development. The parties work together to establish appropriate target pricing early in the project, and this target pricing is constantly fine tuned and adjusted until such time as the architect, design consultants, contractor, key subcontractors have sufficient confidence in the pricing to put their fee or profit at risk relative to a firm target price. All, or a portion of the fee and profit from participating project participants are placed in a risk pool, which will be used to pay for any cost overruns. If the project is successfully completed for less than the agreed upon target pricing, then the agreement may provide that the risk pool may be increased. At the end of the project the risk pool (i.e. everyone’s profit and fee) is distributed according to a pre-determined percentage that each party has as its share of the risk pool. As noted, the amount in the risk pool will depend on the success of the project. However, there is no maximum price. If project overruns have exhausted the amount placed in the risk pool, then the owner bears the risk of cost overruns in excess of that amount.
C’mon In, the Water’s Fine!
So, it’s an all-in type of fail/success model which ultimately falls upon the owner if overruns are in excess of the shared pool. So why is IPD not more widely adopted?
The Construction Advisory Report speculates that (a) owners are satisfied with the traditional models, (b) there’s not enough buy-in about the cost savings, as profits are hard to compare project-to-project, and (c) the cost-curve is accelerated at the BEGINNING of the project, and not the end.
It will be interesting to watch as the Construction Industry, a notoriously slow adopter of new technology and practices will shift to IPD as the next project delivery system, or evolve into an entirely unexpected model based on societal demands and global best practices.
Want to weigh in? Comment in the Ledgerwood Associates LinkedIn Group for clients and friends.
Happy 40th “Sage Anniversary!”
The sound of champagne popping on a late Friday afternoon in Scottsdale was an audible salute to co-founder of Ledgerwood Associates, Inc., none other than the eponymous man himself – Ed Ledgerwood. While he wasn’t surprised that the occasion was celebrated at the LAI office, Ed got a little surprise when he went up to Sage HQ the following week for Sage Paperless Construction training.
The entire company signed a framed advertisement from Timberline’s earliest days, and it was presented to Ed by Bob Brossman, a Senior Executive of Sage North America. Jon Witty, VP and General Manager for Sage Construction and Real Estate entertained the crowd by swapping stories with Ed about the “old days.”
It all started on October 10, 1974…to read more, check out the Ledger blog post.
Now available from LAI – Sage CRM! Complete your Sage Suite!
Sage CRM is specifically designed to help small and medium sized businesses like yours. It is easy to deploy, install, manage, learn and maintain for companies who want to focus on their business and not on their software. With Sage CRM, you can be up and running in just days. Most importantly, it’s affordable—so you can be assured that you’re getting the best possible value for your money.
Want to know more about CRE for Construction? Shoot us an email, and we’ll send you more information.
Upcoming LAI Online Training and Networking Events:
Let us introduce you to Procore, the all-in-one construction management software built to help you finish quality projects—safely, on time, and within budget.
Procore will walk through the platform and showcase how Procore can integrate to your Sage 300 CRE or 100 Contractor solution.
What will be covered:
- Introduction to Procore
- High level product demo
- Sage + Procore integration
- Open Q & A
Archiving Fiscal Year Data and Purging Old Jobs
Submitted by Walt Mathieson, Certified Sage 100 Consultant
Recently I have been placing a reminder about the current version of Sage 100 Contractor at the end of my Tips and Tricks posting (it is still version 19.4.58), but in the past few days Sage has advised that it will only support version 19.5 (which won’t be available until mid-December) for the impending Year End. The 19.5 update will contain the 2015 Tax Tables. Thus, be on the lookout for the version 19.5 in December and be ready to install it so that withholdings for 2015 Federal and State Income Taxes will be correctly calculated.
Time to Start Preparing for Year End!
It may not yet be Thanksgiving, but it’s not too early to start preparing for W-2s and 1099s that must be filed in January 2015.
Vendor Payments and 1099s
Most construction businesses will be required to report payments for services totaling more than $600 per year to recipients that are not specifically exempted from such reporting. Exempted recipients include corporations (other than professional services corporations like doctors and lawyers), governmental agencies, non-profits, banks, and insurance carriers. Individuals, sole proprietorships, partnerships, and limited liability companies are not exempt from 1099 reporting. Payments for merchandise (but not parts installed as part of a service provided), certain expense reimbursements to employees, and loan principal repayments do not need to be reported on a 1099.
There are a number of steps that you can take to ease your 1099 processing before the end of the year.
- Request a form W-9 from all vendors paid this year to ensure that you have proper names, addresses and Taxpayer ID numbers for vendors. The form also will provide the information needed to determine if a vendor is an entity exempt from 1099 reporting. The current W-9 form can be downloaded from http://www.irs.gov/pub/irs-pdf/fw9.pdf.
- Review all vendors to ensure that they reflect the correct 1099 Type and if they are designated to receive a 1099 with types 1-Misc, 2-Rent, 3-Sole Proprietor, or 4-Interest, make sure you have the correct Name, Address and Taxpayer ID#. If a vendor is type 5-No 1099, it can’t hurt to have a valid Taxpayer ID#, but you are generally not required to collect one.
- There is no excuse for having a vendor with a 1099 Type of 0-Undetermined unless you have never paid the vendor!
- Review report 4-1-1-61 Vendor 1099 report to find problems or missing data.
- If you have questions about what payments are included in the 1099 balances, run report 4-1-5-61 Vendor 1099 Payments to see the details.
- If your Sage 100 Contractor information is incomplete for the calendar year (for instance you implemented during the year, you may need to adjust your data for payments made outside of Sage 100 Contractor. Contact your friendly Sage Certified Consultant for more information about this special situation.
I strongly recommend that users not order 1099 forms or plan on in-house printing and mailing of 1099s to recipients and government agencies. This tends to be more expensive than using the embedded Aatrix E-File service. Yes, there is a cost per recipient, but when one factors in the cost of acquiring the forms and envelopes, printing the forms, stuffing envelopes, affixing postage, and mailing the forms, the benefits of using the Aatrix E-File service become obvious.
Payroll and W-2s
If you prepare your payroll in house and will have to distribute W-2s to the governments and your employees, there are a few steps you can do to ease the process before the end of the year.
- Review all 5-2-1 Employee records for accuracy of employee names, social security numbers and addresses.
- Be aware of any employees that may have received third party sick pay from a workers compensation insurer or a disability insurance provider and ensure that all reported third party sick pay data has been properly recorded in your payroll records.
- Run 5-3-7 Payroll Audit regularly and ensure that all audit errors are corrected.
- Review with your outside tax accountant whether any items of additional compensation must be added to employees’ total compensation, such as the cost of “excess” employee life insurance, the value of personal use of company owned vehicles, certain benefits provided to company owners, etc. Such additional compensation can be properly reflected in your payroll records, but care should be taken to quantify the amounts and record them properly.
I strongly recommend that users not order W-2 forms or plan on printing and mailing W-2s to employees and government agencies. This tends to be more expensive than using the embedded Aatrix E-File service. Yes, there is a cost per employee, but when one factors in the cost of acquiring the forms and envelopes, printing the forms, stuffing envelopes, affixing postage, and mailing the forms, the benefits of using the Aatrix E-File service become obvious.
Sage Fixed Assets Year End Tips
Submitted by Kyle Zeigler, Sage Senior Certified Consultant
Unlike your other Sage accounting software, there are no year-end closing procedures for Sage Fixed Assets Depreciation. Depreciation automatically rolls to the new fiscal year when you run depreciation for the last month of the prior fiscal year and the Current YTD fields are set to zero. However, there are a few things to consider for making sure you have a smooth year-end and for making it easier to obtain reports for prior years:
- Before running your last depreciation of the year, first verify that your Fiscal Year End is set to the correct period.
- After running the last depreciation of the year, run the Form 4562 from the Tax Reports menu and verify that the totals tie to the Depreciation Expense report.
- Backup your Sage Fixed Assets database to a secure location using the built-in utility.
- Set the Period Close. This feature is optional, but allows you to store the depreciation values for the period through which depreciation has been calculated. Storing your year-end depreciation totals could be helpful for historical reporting and audit purposes.
- Run your year-end reports and export to a file. Be sure to export at least one detail report to file to preserve prior period totals in an easily accessible format (such as Excel).
- Copy the company to a new database for the new fiscal year and edit the name of each company to reflect the year (for example, ABC Company 2015). This gives you the ability to easily print reports for prior years.
These simple procedures should help you avoid losing potentially valuable information and set you up for easy access to information you may not otherwise be able to produce without a good deal of time and effort. If you would like more information on the features of your Sage Fixed Assets software, please contact your local Sage business partner or Ledgerwood Associates, Inc. for assistance.
Commuting Deduction Boundaries set by Tax Court
Submitted by Bryan Eto, CPA
“A taxpayer’s costs of commuting between his or her residence and place of business are generally nondeductible personal expenses, regardless of the distances involved.”
— U.S. Tax Court
Although you usually can’t deduct typical “commuting” expenses from home, you may qualify for a special exception if you’re away working on temporary assignments. But the IRS and the Tax Court won’t allow borderline deductions, as evidenced by one case involving a construction worker.
We’ll explain what happened in the case, but first, here is some background information.
Basic Rules for Temporary Assignments
Generally, the cost of commuting between your home and a place of business is nondeductible, regardless of the distance traveled. But there are several tax law exceptions to this rule. For example, if your home is your principal place of business, commuting to another business location is deductible. Another exception is allowed for travel between your home and temporary work locations if you have one or more regular business locations away from your home.
For these purposes, a temporary assignment in a single location is one that is realistically expected to last (and in fact, does last) for one year or less. However, if the job is indefinite, the location of the assignment effectively becomes your new “tax home,” so you can’t deduct travel expenses to and from there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than one year — whether or not it actually does last more than one year.
Similarly, you may deduct travel expenses between home and temporary work locations outside the metropolitan area where you normally live and work. But there is no strict definition of “metropolitan area” in the tax law for the courts to follow. Courts will consider the relevant facts and circumstances in each case in determining if the expenses of a particular taxpayer were incurred traveling to a worksite unusually distant from the area where the taxpayer normally lives and works.
Facts of the Case
Kristopher Saunders performed construction services in 2007 as an employee of Valley Interior Systems, located in Cincinnati, Ohio. But Saunders never reported to the Cincinnati office of Valley Interior Systems. Instead, he traveled to five temporary worksites. None of the jobs lasted longer than a few months.
The temporary worksites ranged in distance from 74 miles to 96 miles from Saunders’ home in Manchester, Ohio. Each day, Saunders drove directly from his residence to the current worksite and then straight back home at the end of the workday. For reasons that were not explained in the record, Valley Interior Systems didn’t reimburse Saunders for any of the costs of commuting between his residence and these five worksites.
On his 2007 federal income tax return, Saunders claimed a $23,802 deduction for unreimbursed employee business, mainly attributable to auto expenses for commuting between home and the temporary worksites. The IRS disallowed practically all of it.
After examining the exceptions to the general rule concerning commuting, the Tax Court said that Saunders could not deduct the travel expenses. Reasons: The court noted he had no regular work location during the tax year in question. Also, Saunders testified that his “main area” was the “Cincinnati metropolitan area.” The evidence didn’t establish that any of the temporary worksites where he worked in 2007 should be considered to be outside of the Cincinnati metropolitan area in order to qualify under the tax law exception and he was not eligible for any other exceptions to the general rule. (Saunders, T.C. Memo 2012-200).
Saunders argued that he should be able to deduct his commuting expenses because he was permitted to claim them for a prior year. The Tax Court stated that he was mistaken in making this argument. “Each tax year stands on its own and must be separately considered,” it added. “The IRS is not bound in any given year to allow a deduction permitted for a prior year.”
The optimal approach for an employee is to have travel expenses to temporary worksites reimbursed by his or her employer. The reimbursements are tax-free to the employee. Otherwise, a taxpayer should try to qualify for commuting deductions under one of the exceptions outlined above. Remember that a temporary assignment is one that is expected to last for less than a year — regardless of the actual length of time.
Also, note that the courts won’t be inclined to be sympathetic if you claim deductions for commuting to temporary job sites that are nearby. The IRS and courts will likely disallow deductions if you’re commuting within the same general metropolitan area.
Finally, be aware that employee travel expenses must be claimed as miscellaneous expenses on your personal tax return. Only the portion of your miscellaneous expenses exceeding 2 percent of your adjusted gross income (AGI) is deductible. This 2-percent-of-AGI floor is difficult to meet and creates an additional incentive to seek employer reimbursements.
1985 E. River Road, Suite 201 /Tucson, AZ 85718 / 520.321.4600
20830 North Tatum Boulevard, Suite 225 /Phoenix, AZ 85050 / 602.265.7011
Would you like a copy of our newsletter in PDF format? Email Joanie@ledgerwoodassociatesusa.com and we will email it to you!