From the November 2010 Issue
Many professional accountants consider fixed asset management a client-side function — something that a business manages directly, with financial information syncing or manually entered into their GL. Then, when providing write-up, trial balance or annual tax compliance services, their public accountant reconciles the data and ensures the appropriate treatment and depreciation of the assets.
However, asset management can be a highly complex endeavor, especially for organizations that have substantial manufacturing and capital assets, but also for businesses with smaller asset bases. The biggest challenge is in maintaining compliance with tax code, since determining and applying the most beneficial and also appropriate depreciation strategies requires more than simple knowledge of an off-the-shelf bookkeeping package.
It is a specialty — one that requires either direct experience with taxation and the pertinent areas of the IRC, or at least the knowledge of where to look. With frequent changes, especially notable recent ones to bonus depreciation and Sec. 179, these traits aren’t very common among non-professionals.
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Simply put, a small or mid-sized business’ bookkeeper is not, with rare exception, qualified to make decisions on applying conventions, methods, classifications, life spans and property types. At best, this can result in minor mistakes that can pile up and increase the time spent by their qualified public accountant or tax professional during write-up, compliance or financial reporting functions. At worst, it can result in serious misapplication of tax law, with the potential audit and financial horrors that accompany.
For smaller businesses, those who can’t justify the addition of a truly qualified in-house tax professional, fixed asset depreciation management should be a service they rely on your firm to provide.
After all, strategic planning of asset depreciation is as critical as tax planning, and involves many of the same strategies of scenario testing to determine the most effective treatments, but needs to be combined with the expertise of someone with the appropriate knowledge and resources. This, in turn, can help businesses achieve the greatest tax benefit from current and future capital investments.
Of the programs reviewed in this section, about half are designed specifically for use by tax and accounting firms, although almost all of them have capabilities for managing multiple entities. The key factors in determining the program most suited for either you or your clients are the size of the asset bases to be managed per entity, the types of assets and the client’s industry, which greatly affects the types of depreciation likely to be involved.
For those with many fixed assets, the ability to perform mass actions is essential, as are asset location and tracking capabilities, particularly for organizations with multiple locations.
Strategic and effective asset management is somewhat of a combination of knowledge of tax law and the art of structuring variable depreciation methods into beneficial and legal treatments that help a business take the greatest advantage of offsets to their tax liabilities, and to plan for future investment. As a tax and accounting professional, you are the artist. And a fixed asset management program and knowledge of tax law are some of the tools of your trade.