ERP Fixed Assets and Tax Depreciation

As the case with most Accounting packages out there, fixed asset management is not a focus when vendors develop ERP solutions.  Although they are quite fabulous at integrating financial information and automation, the depreciation piece isn’t as robust as it often needs to be — especially for tax depreciation.

I am starting to see a trend with companies who are using ERP accounting solutions and are making the switch (or researching to) a third party fixed asset package.  The word on the street is: when trying to keep up with the current tax depreciation methods, laws and bonus depreciation, their ERP fixed asset module isn’t cuttin the mustard.

No need to worry any longer, the Sage FAS solutions can assist you in keeping compliant with your depreciation as well as provide you with the following benefits:

  • Regular tax updates – ERP system struggle with these
  • More robust fixed asset management functionality
  • Cost savings – you don’t need an ERP Consultant to update your customized system
  • Knowledgeable support from depreciation experts
  • Enhanced compliance for SOX, GASB, property taxes and insurance

While fixed asset management is a tiny part of what ERP research and development teams work on, it is the exclusive focus of dedicated fixed asset systems such as Sage FAS.  The Sage FAS development, quality assurance, professional services and customer support teams all receive extensive training in the intricacies of deprecation — which includes a staff of CPAs!

All this sound to good to be true?  Don’t fret… you can have your cake and eat it too, for there are many ways to get your ERP to integrate with the Sage FAS solutions — it just depends on your internal processes.

Keep being crazy with your fixed assets!

Fixed Asset – Don’t Delete Disposals!

Most often when exploring through mass amounts of fixed asset spreadsheet data, we ask… where are your disposals?  Sometimes the answer we hear is: we deleted those.  WHAT?

When you sell, exchange, abandon, retire, or in some other way dispose of an asset, you need to account for that process somewhere [a paper trail].  Generally, you do not want to delete an asset – ever. If you delete an asset, you lose all of its history information.  Delete an asset only if you think you will never again need a single piece of information from that asset (for instance, for a tax audit). 

Here are a few ‘proper’ ways to keep track of disposals:

  • If using a spreadsheet, create a separate tab or worksheet to move them too.
  • EVEN better… if you use an automated depreciation system [insert sales pitch – like Sage FAS], you can go through the steps to dispose of the asset, run your disposal report, account for your Gain/Loss and tie that back to your Journal. 

If you would like to discuss other options — give me a jingle or become a pen pal!

Sage FAS Asset Accounting – Data Schema Upgrades?

There are a lot of old Best/Sage FAS users out there that have never kept up with their Sage Support annual maintenance. This tends to be an issue when they decide to get their data back into the Sage FAS Asset Accounting solution – 3 years or so later.

The problem is that you can’t just take your current (let me just throw a version out there) data that is stuck in a FAS time warp of v2001.1, install new version of Sage FAS 2009.1.1 and roll with it. Their will be no wa-la! You need to take that data through – what we call – a version schema upgrade. To do this, you need all (or at least most) of the versions in between then and now. Trouble with is, Sage only provides v2007.1 and newer to support members.

Good news! Paragon Systems can assist you with your data schema upgrade for a nominal fee. Yes, we are such Sage FAS nerds (sshhhhhh) that we have the complete Best/Sage FAS library from v98.1 (OMG). You NEED help… we CAN help.

It’s important to take your data through this process to ensure all data tables are properly updated and restored to current version. If you don’t do this, you can cause serious corruption to your critical fixed asset data. Yikes! Don’t mess with it… let the Pro’s take care of it.

If you have other questions or concerns about this topic, please contact us and we can chat with you further.

A TRUE Fixed Asset Transfer

Most are confused about a true asset transfer and the process behind it.  I’m here to set the record straight!

NOT a true asset transfer:

If you are just physically moving an asset from Location A to Location B but the depreciation is still maintained centrally on one set of books… then you are simply just “moving” your asset.  So instead of thinking too much into it, just update your descriptive fields.

A TRUE asset transfer:

If you are moving your asset from Location A to Location B and they are responsible for keeping their own deprecation books and recording them separately (GL to GL), then this is a true fixed asset transfer.  So, if Location A is stopping their depreciation on the date of transfer; Location B would be picking up the depreciation where the Net Book Value was left off at Location A.  End result: Location B is now responsible for the continuing depreciation until that asset is either fully depreciated or disposed.

If you are having trouble keeping up with this process in your spreadsheet or another depreciation system, let this be known: Sage FAS 100 and 500 Asset Accounting does a FABULOUS job keeping track of this process — with standard reports and all!  A Fixed Asset Manager and an Audits dream come true!

Happy asset tracking!

Cost or ‘Value’ Seg Studies

What is Cost or Value Segregation Studies and why should I care?

By definition, a cost segregation study is identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes. 

A real world example:  when you build a building and everything associated with that building is generally categorized under a vague description and bulked together to become one fixed asset entry with a class of Real Property and depreciating on a straight-line method with a 39 year life.  However, after a true cost segregation study, most of the time (if properly executed) 20% to 60% can be reclassified into Personal Property and depreciated on a double declining balance with a much shorter recovery period – either 7 or 5 years!  Way better than 39 hu?

So why should I care?  Because silly, who wouldn’t want better control over their fixed asset line items and who wouldn’t want to recover more depreciation and uncover those assets that may qualify for additional bonus depreciation (Economic Stimulus Bill for an extra 50%)?  Bottomline of why — generate more cash flow in these ‘trying’ times and clean up your fixed assets! 

Why don’t more people take advantage of this study?  Generally, they are too concerned about paying for such a service, but in the end, this service actually PAYS for itself right off the bat!  Imagine if you will…. recognizing an overall 20% to 60% write-off on your fixed assets; still not convinced?  It’s MONEY in your pocket!

For those that don’t want to take my word for it….
My friend Wiki states:

In addition to providing tax relief, cost segregation can benefit businesses in a number of ways:

  1. Maximizing tax savings by adjusting the timing of deductions. When an asset’s life is shortened, depreciation expense is accelerated and tax payments are decreased during the early stages of a property’s life. This, in turn, releases cash for investment opportunities or current operating needs.
  2. Creating an audit trail. Improper documentation of cost and asset classifications can lead to an unfavorable audit adjustment. A properly documented cost segregation helps resolve IRS inquiries at the earliest stages.
  3. Playing Catch-Up: Retroactivity. Since 1996, taxpayers can capture immediate retroactive savings on property added since 1987. Previous rules, which provided a four-year catch-up period for retroactive savings, have been amended to allow taxpayers to take the entire amount of the adjustment in the year the cost segregation is completed. This opportunity to recapture unrecognized depreciation in one year presents an opportunity to perform retroactive cost segregation analyses on older properties to increase cash flow in the current year.
  4. Additional tax benefits. Cost segregation can also reveal opportunities to reduce real estate tax liabilities and identify certain sales and use tax savings opportunities.

Under certain circumstances, segregated assets may qualify for a special 30% bonus depreciation allowed by the Job Creation and Worker Assistance Act of 2002 or a 50% bonus depreciation allowed under the Jobs and Growth Tax Relief Reconciliation Act of 2003.

Baseline Inventory – or – Dynamic Inventory

Baseline or Dynamic is the question; that depends on your situation.

Definitions of both are:

  • Baseline Physical Inventory: No field validation – no database
  • Dynamic Inventory: Real-time field validation – you already have a database

Which one should I perform?  That really depends on: 1) your project, 2) the integrity of your current data , and 3) have you ever performed an inventory yet?

Once you know the answers to those questions, the answer of which inventory is best suited for your project will be staring at you in the face!

Remember, determining if a Baseline or Dynamic inventory is better, this is only ONE piece of the puzzle.

P.S. I personally provide a free 1 hour online Webinar on the Best Practices of a Physical Asset Inventory.  Every second Friday of each month at 11:00 a.m. (PDT).  http://www.paragon-net.com/FAS-online-training/fixed-asset-inventory-webinar.html

Question o’ the Day: Sage FAS and Sage Peachtree Accounting

This week has been a little wacky, all of a sudden we are getting a lot of requests on the Sage FAS for or with Sage Peachtree.  Most of the question are about the asset/line item maximum, etc.  Here are the details of Sage FAS and Sage Peachtree — in harmony?

Sage Peachtree ships with a small version of Sage FAS.  Although this version is a full version of the Sage FAS 50 Asset Accounting solution (for small business); this is ONLY limited to 200 assets or line items per company.  Not to be confused with the real deal that you actually ‘pay’ for.  There is a version of Sage FAS 50 for Peachtree that is available to those needing more room for their growing fixed asset count. 

Sage FAS 50 for Peachtree allows you up to 1,000 assets or line items per company.  The cost you ask?  $495 for the product ‘with’ the purchase of one year annual Sage SupportPlus: $295. 

Conclusion: a Sage Peachtree user can purchase a larger version of Sage FAS for Peachtree for the total cost of $790 for the first year.

To Bulk or Not to Bulk… Fixed Assets

I often get asked if companies should approach their asset tracking and depreciation by bulking items together (like that of their out-sourced CPA firm — general statement) or individualize them out as their own separate line item.  Good question, here is my answer:

  • Let’s say you have $50,000 in furnture and fixtures on your books (internal/GAAP) which may represent 35 items, and that your out-sourced Tax Accountant/CPA Firm has $50,000 in Furniture and Fixtures for your Tax and other federal depreciation books too.   NOTE: let’s hope you or your out-sourced CPA firm have an actual quantity count for that $50k.
  • You go and perform a physical inventory (or have one completed for you) and find that your count of your furniture and fixtures is only about 25 items TOTAL.
  • You will now need to perform a partial disposal of 10 F&F items that were NOT FOUND during your physical asset inventory.
  • Keep in mind, since all you have is a count of 35 items but you only found 25 — common calculation for a partial disposal would to take the $50,000 and divide that by 35 = $1,428 per asset.  Which would lead most to believe, they need to write off $14,286 (rounding) on their books.

My WHAT IF Scenario

  • What if out of those 10 missing assets, one of those were a big ticket item that took up about 25% of the total cost of your $50,000?  That would be roughly, $12,500 for that ONE item!

END RESULT

  • You just spread out an average cost across 10 items for $14k write off, when actually…. That amount could (theoretically) be more like $25,000 or more depending on the individual item.

WHAT HAVE WE LEARNED

Take control of your fixed asset management and itemize those items out whenever possible!  This process will benefit your bottom line and make your job of managing your fixed assets a much more simple task.

Not to say that you should never bulk your items together, there are best practices with this process (another subject for a BLOG post), but this is the quick n’ dirty answer.

Why Spreadsheets for Fixed Asset Depreciation are NOT the Best Solution

About 75% off all clients and prospects that come knocking on my door are utilizing spreadsheets for their fixed asset depreciation calculations.  When we perform a data conversion into the Sage FAS solution (or just simply audit their books), 100% of the time we ALWAYS uncover missing cells, columns or blown out (erased) formulas, which in turn drastically throw off their monthly depreciation.

One ‘new’ client thought that maybe they would stick with their Spreadsheet after reviewing our automated solution since, “it is easy and familiar”.  I explained that it’s pretty darn easy to mess up a spreadsheet, forget to save it or open the wrong copy to update.  After weeks of not hearing from them… that every thing happened and they had to enter in all their assets into a spreadsheet again and redo the whole schedule!  They came back and thank goodness for them.

End of the day… a Spreadsheet is flexible and easy to use; however it’s not a reporting tool, it doesn’t have the right amount of security and it does NOT safeguard your critical fixed asset data.

New Home for a Senior Fixed Asset Consultant

Since teaming up with Paragon International (back in May 2009), I’ve learned so much about Cost Segregation studies (how they are done the right way) and how so many misclassify real property and just by legally reclassifying fixed assets, it can greatly impact depreciation schedules — for the good — producing much more cash flow!  I’ve been performing and offering many facade’s of fixed asset management over the last 10 years of my life… depreciating an asset over, say, 5 to 7 years on a double declining method is FAR better then depreciating it over 39 years on a straight-line.

Since Paragon International has been in business (going on their 25th year – helllooooo) they have valued, inventoried and studied over $300 billion fixed assets worldwide across all industries and sizes of companies. That is truly incredible! More wonderful facts and tips about fixed assets to come.