Tax season has passed and next April will come along before you know it. Did you collect your gross receipts and banking statements? Travel expense logs? Equipment vouchers? The equipment itself?
What about inventory documents? Did you gather them together? Can you find them all? Leases? Payroll accounts? Insurance information?
If you rely solely on your accounting or, even worse, on a spreadsheet app to track and manage your assets, you may need to reevaluate your methodology.
It may be too late for 2017, but the implementation of asset tracking software could make your 2018 tax season considerably less stressful.
Why Worry About Your Inventory?
Too many small- and medium-sized businesses slack on their inventory oversight and feel the pain come tax time. When you fail to adequately keep up with what you keep in the stockrooms because of poor records such as spreadsheets, ink-and-paper tallies, or no real management at all, you open yourself to a higher tax rate. You also waste valuable man-hours in an attempt to play catch-up toward the end of year to ensure your counts are relatively close.
Related Article: Asset Tracking Saved Thousands in Repairs & Taxes: A Personal StoryWith asset management and real-time updates, you can free yourself and your staff to handle other pressing matters in your business; namely, the business itself. And when tax time comes, your inventory can help deduct from your net profits for the year and, in turn, reduce your taxable income by as much as 88 percent!
Don’t Go Overboard: Keep That Accounting Software
Do not discard those accounting programs altogether! While they may not be practical to keep tabs of your assets and inventory, they will easily keep up with your expenses, financial standings, and accounts due. These areas may or may not be able to be updated in real time – company credit transactions, paid checks, and consumer payments don’t necessarily automatically update, nor should they – but stand proven adequate for finances.
Asset management software, on the other hand, can keep you in the know on all pertinent information about your assets and inventory as accounting does your finances. It could even completely change the way you inventory and move your stock.
What Comes In Should Go Out
Depending on the nature of your business, your inventory will (hopefully) move out in one of two main ways: FIFO or LIFO.
FIFO, or “First In, First Out,” is commonly used by companies that deal in perishable goods or items prone to obsolescence. Foods, fashion, and technology fall under this category. The push of older merchandise, even at a lower cost, helps to avoid spoilage (a total loss) and often results in higher net income and tax responsibility.
LIFO, or “Last In, First Out,” tends to be used for sales of natural resources such as fuel oils and metals. It also focuses on the cost fluctuations of the materials as time passes, namely that prices tend to rise. The use of these higher end prices often reduces the company’s net income and tax responsibility.
Regardless of how you move inventory, the fact remains that you needed to account for your inventory. Asset management software can help you construct a central database that can be easily accessed by anyone responsible for inventory and loaded with pertinent information such as:
- Item names
- Item descriptions
- Quantity of items
- Cost per item (especially important for LIFO)
- Purchase dates
- Item location
- Identification of anyone who accessed or ordered additional items and when.
The price variance can come in handy as support for any figures shown through your accounting software, plus the added benefit of real-time updates whenever supplies move in or out of the stockroom.
Another benefit of asset management is its ghost-hunting ability. No, you did not misread that: Asset management helps to eliminate ghost assets.
Ghost assets are fixed assets that show up in your records but cannot be physically located for one reason or another. Typically, these reasons include: Loss, theft, misplacement, improper or incomplete records, and obsolescence. These mistakes throw counts off and increase your tax liability. The result? An overpayment on taxes of between 10 to 20 percent!
Asset management prevents inventory hauntings as it automatically logs any changes to your inventory. When you sell an item, it gets deducted from your original tally. When you receive a shipment of goods, you can scan them in and upload a new total.
The Best Of Both Worlds?
While a timesaver on its own, some asset management software providers took their programs a step beyond. While you would normally use a management program to handle your inventory and an accounting program to calculate your finances and transfer data between the two, some companies like New Zealand-based Xero decided to cut out the transitional period. Xero’s small business accounting software now integrates fixed asset functionality at no additional cost to the businesses.
This integration eliminates the need for a second program and reduces the time spent in data swaps. Now information about tax depreciation and assets sits alongside end-of-year receipts and accounts payable in a neat package.
The options are out there. Why not take advantage of them and help your business pay what it should, not what it did with sloppy books?
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