Navigating LIFO Inventory Methods During Global Supply Chain Disruptions

Dec 20, 2021


State of the Global Economy
The same issues have been covered in the news cycle for months; supply chain malfunctions, production shortages, inflation, increased tariffs… all the reasons why businesses are facing heightened costs of resources this year. COVID-19-related disruptions have affected distributors and manufacturers worldwide, with gradual increases in the consumer prices index every month since the third quarter of 2020 (apart from May ‘21.) Numerous products including crude oil and petroleum products, natural gas, leather, lumber and wood, chemicals, and metal products have all seen substantial inflation (from 25% – 200%) in the last twelve months.

As costs go up, one tax leveraging option for those required to maintain inventories is the LIFO (last-in, first-out) inventory method. By using LIFO, goods sold throughout the year are deemed to come first from any goods purchased or produced during that year, then from the beginning inventory. As a result, inflation on items in the ending inventory is already included in the cost of goods sold, which may result in a lower taxable income.

LIFO Snapshot
LIFO is an alternative inventory valuation method, used by companies during periods of increased inflation to defer significant taxation. When adopting a LIFO inventory method, taxpayers can measure the effects of inflation on their internal and external prices by assuming the most recently purchased items are being sold first. This is achieved through an “inventory price index computation method,” using indexes published by the Bureau of Labor Statistics.

First, the taxpayer must ascribe value to all inventory (including beginning inventory) at cost. Then, say the LIFO method was adopted in the tax year 2020, the taxpayer should value all inventory at cost, ratably, for 2020 through 2022 and account for any necessary adjustments. In theory, the result of those adjustments would reflect the impact of inflation on company inventory and would then be deducted from taxable income and removed from the balance sheet.

It is required all taxpayers adopting the LIFO method for tax purposes, apply a LIFO computing method to book income. Additionally, all financial statements issued by the taxpayer must reflect computation under a LIFO method. To adopt LIFO, taxpayers must attach Form 970, Application to Use LIFO Inventory Method, to their federal income tax return.

Considerations
Adopting a LIFO inventory method may not benefit all taxpayers. Companies considering the use of a LIFO method for the 2021 tax year should first perform a cost-benefit analysis in order to answer the following questions:

  • What are the potential tax savings for the 2021 tax year if the company switched to LIFO?
  • Historically, what trends has the company experience during periods of inflation?
  • Do historic trends and potential tax savings warrant a switch to a LIFO inventory method?
  • What costs are associated with implementing & maintaining LIFO computation in-house?
  • Are the potential tax savings greater than the projected costs?

As always, our team of advisors is available to help you determine the best approach for your given situation.

Categories: COVID-19, Manufacturing & Distribution


SBA Announces Opening of Paycheck Protection Program Direct Forgiveness Portal

Aug 23, 2021

The SBA has published new guidance on PPP loan forgiveness on loans of $150,000 or less. A new portal has been established in which borrowers can request forgiveness directly w the agency instead of going through their lenders. The portal, launched in early August, is the latest attempt by the SBA to make the PPP loan forgiveness process easy and streamlined.

“The SBA’s new streamlined application portal will simplify forgiveness for millions of our smallest businesses — including many sole proprietors — who used funds from our Paycheck Protection Program loans to survive the pandemic,” said Administrator Isabel Casillas Guzman.  “The vast majority of businesses waiting for forgiveness have loans under $150,000. These entrepreneurs are busy running their businesses and are challenged by an overly complicated forgiveness process.

The SBA has also created a PPP customer service team that will answer questions and directly assist businesses with their loan forgiveness applications. This team can be reached at 877-552-2692, Monday through Friday from 8 a.m. to 8 p.m. EST.

Click here to access the Paycheck Protection Program Direct Forgiveness Portal.

Categories: COVID-19


Ohio’s Municipal Payroll Withholding Dilemma – Take 2

Jul 09, 2021

On June 30, Governor Mike DeWine signed into law Ohio’s 2022-23 budget. One of the key items in the law was the clarification of a municipal income tax withholding dilemma that has been ongoing since virtually the beginning of the COVID-19 pandemic. While this clarification means good news for many employees, it may also be a massive headache for employers.

The Good News
Earlier this year, we penned a blog outlining how a temporary “Pandemic” law change intended to ease municipal income tax withholding burdens on employers was, in fact, having unintended negative consequences on remote workers. Many were left paying taxes to municipalities they did not live in and did not physically work in either, due to stay-at-home orders.

The 2022-23 budget bill extends the temporary law noted above through December 31, 2021, and clarifies that it applies only to employer withholding requirements and not to the actual liability an employee has to a given city. This means, for 2021 only, employees can request a tax refund for any days they neither lived nor physically performed work in a municipality. It is important to note an employee may still owe tax to the municipality in which they live.

The Bad News
Yes, the temporary law is extended to the end of 2021, but that means, beginning in 2022 “pre-pandemic” law will be back in place.

While the ever-expanding world of technology was leading us down a road where remote work would become the norm, the COVID-19 pandemic put us in a Lamborghini and sped us there in a matter of a year. Employers have realized their workforce can get work done remotely, and employees are becoming accustomed to more time with their families and much less time commuting while continuing to be productive in their work. Remote work is here to stay, and absent any future, permanent law changes, the reversion in 2022 back to pre-pandemic rules has the potential to be a huge problem for two reasons.

  1. First, pre-pandemic law included a 20-day municipal withholding rule, only requiring employers to withhold if an employee physically worked in a municipality for more than 20 days. Unfortunately, this rule will not align very well with a remote work environment. Even if a business is modestly flexible, allowing employees to work remotely just two days a month, this would trip the 20-day rule, requiring withholding from wages for every municipality within which their employees reside.
  2. Second, although many employers offer courtesy withholding so may already be withholding taxes for those cities, tripping this 20-day rule will now require those wages to be allocated to that municipality for purposes of the net profits (income) tax, subjecting the company to Income tax in each of those municipalities.

To ease into the 2022 transition, employers could consider formalizing hybrid work arrangements and creating an internal system to easily track days worked remotely.

We will be keeping our eyes peeled for any future legislation that may alter municipal tax rules for 2022 and beyond. If you have any questions in the meantime, please contact your William Vaughan Company advisor.

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wvco.com | 419.891.1040

Categories: COVID-19, Tax Planning


Fueling Growth With A JobsOhio Inclusion Grant

Jul 09, 2021

The JobsOhio Inclusion Grant program was established in 2020 with the goal of providing financial support for eligible projects in designated distressed communities and/or for businesses owned by underrepresented populations across the state, including minority, veteran, and women-owned businesses.

Locally, the Toledo Regional Growth Partnership and William Vaughan Company have assisted qualifying organizations in receiving upwards of $25,000 to help facilitate growth.

How do I qualify?

To qualify for the Inclusion Grant, a company must:

  • Meet one of the 2 criteria – 1.) Be owned by an underrepresented population – which includes race, ethnicity, gender, veterans, and those with disabilities, or 2.) located in a qualified distressed community as defined by the Economic Innovation Group.
  • Be a targeted industry including Advanced Manufacturing, Aerospace and Aviation, Automotive, Energy and Chemicals, Financial Services, Healthcare, Food and Agribusiness, Logistics and Distribution, Technology, Military, and Federal.
  • Ineligible companies include retail or operations that include point-of-final-purchase transactions at a facility open to the public or other population-driven businesses that derive most of their sales from in-person delivery of services or products. For example, restaurants, hair salons, physician’s offices, retail stores, daycares, etc. For a full list of ineligible businesses, visit the JobsOhio website.
  • Additionally, companies must have been in operation for at least one (1) year and be able to demonstrate $100,000 in annual revenues.

What can the grant fund be used for?
Funds may be put towards eligible costs including fixed-asset investment in machinery and equipment, real estate investments, and training costs, among other items including:

  • Land
  • Building
  • Leasehold improvements
  • Machinery and equipment
  • Moving and relocation costs of machinery and equipment related to the project
  • Infrastructure
  • Site development
  • Revitalization costs including demolition, renovation, and environmental remediation
  • Fees and material costs related to planning and feasibility studies
  • Engineering services
  • Employee training costs
  • Information technology including hardware and industry-specific software.

A full list of eligible costs can be found on the website noted below.

What should I do next?

Visit the JobsOhio Inclusion Grant Program website. Ensure you meet the criteria to be eligible. The Grant is reimbursement-based and requires supporting documentation including proof of payment.

Contact your William Vaughan Company representative or call our office number below to receive assistance in applying for this useful grant.

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wvco.com | 419.891.1040

Categories: COVID-19, Other Resources


Ohio Small Business Grants Available Starting June 29

Jun 28, 2021

The Ohio Development Services Agency released eligibility information for a series of small business grants available starting Tuesday, June 29. Below you will find information regarding each of these grants including eligibility, qualifications, and fund usage.

Food & Beverage Establishment Grant
This program provides grants up to $30,000 to restaurants, bars, coffee shops, and other food and drinking businesses affected by the COVID-19 pandemic. The dollar amount of each grant will be determined by the business’s loss of revenue in 2020.

  • Eligible businesses for this grant include food service contractors, caterers, mobile food services, bars, taverns, nightclubs, full-service restaurants, limited-service restaurants, cafeterias, coffee shops, and businesses that do not otherwise qualify for the Entertainment Venue Grant because they earn more than 50 percent of their revenue from the sale of food and/or beverages.
  • Eligible businesses must have experienced at least a 10 percent reduction in revenue in 2020 at one or more Ohio locations.
  • Grant funds can be used to reimburse eligible businesses for the following expenses relating to their Ohio business location as long as the costs do not violate state or federal law and are not otherwise specified as ineligible costs:
    • Personal protective equipment to protect employees, customers, or clients from COVID-19.
    • Measures taken to protect employees, customers, or clients from COVID-19.
    • Utility payments.
    • Mortgage or rent payments for business premises (personal residences explicitly excluded).
    • Salaries, wages, or compensation paid to contractors or employees, including an employer’s share of health insurance costs.
    • Business supplies or equipment

Grants will be awarded on a first-come, first-served basis under the guidelines outlined, here.

Lodging Grant
This program provides grants up to $30,000 to hotels, motels, and bed and breakfast operations affected by the COVID-19 pandemic. The dollar amount of individual grants to qualifying businesses will be determined by the business’s decline in occupancy rate in 2020.

  • The business must have at least one Ohio location that has been in operation since at least Dec. 1, 2019, and must have a hotel/motel license from the Ohio Department of Commerce.
  • Businesses can be a hotel, motel, or bed and breakfast.
  • The business must have experienced at least a 10%reduction in occupancy in 2020 as a result of COVID-19.
  • Grant funds can be used to reimburse eligible businesses for the following expenses not otherwise specified as ineligible costs:
    • Personal protective equipment to protect employees, customers, or clients from COVID-19.
    • Measures taken to protect employees, customers, or clients from COVID-19.
    • Utility payments
    • Business supplies or equipment.
    • Mortgage or rent payments for business premises (personal residences explicitly excluded).
    • Salaries, wages, or compensation paid to contractors or employees, including an employer’s share of health insurance costs

Grants will be awarded on a first-come, first-served basis under the guidelines outlined here.

New Small Business Grant
Grants of up to $10,000 to small businesses established between Jan. 1, 2020, and Dec. 31, 2020, under this program.

  • The business must be a for-profit entity that started operations between Jan. 1, 2020, and Dec. 31, 2020, and that has at least two and no more than 25 Ohio employees paid via W2 wages as of Jan. 1, 2021.
  • The business must have a physical location in Ohio and experienced revenue loss or unplanned costs because of the COVID-19 pandemic.
  • A lengthy list of ineligible businesses includes those that previously received the Small Business Relief Grant; are a nonprofit entity; are publicly traded; are operated by a governmental agency or entity; are a club; are primarily engaged in political or lobbying activities or political issue advocacy; operate as a sexually oriented business; engage in conduct regulated by the Ohio Casino Control Commission or the Ohio State Racing Commission. A complete list can be found here.
  • Grant funds can be used to reimburse eligible businesses for the following expenses:
    • Personal protective equipment to protect employees, customers, or clients from COVID-19.
    • Measures taken to protect employees, customers, or clients from COVID-19.
    • Mortgage or rent payments for business premises (personal residences explicitly excluded).
    • Utility payments.
    • Salaries, wages, or compensation paid to contractors or employees, including an employer’s share of health insurance costs.
    • Business supplies or equipment.

Additional grants, including the Entertainment Venue Grant which provides up to $30,000 to theaters, music venues, spectator sports venues, museums, and other entertainment establishments affected by the COVID-19 pandemic, are available through the Ohio Development Service Agency website.

What should I do next?
Beginning Tuesday, June 29, 2021, businesses can apply at BusinessHelp.Ohio.Gov. To access the application, individuals will be required to log in using an existing OH|ID or create a new OH|ID, which provides users with secure access to state of Ohio services and programs. For more information on creating an OH|ID, visit OHID.Ohio.Gov/. For help in creating an OH|ID account, click here.

After an application is approved, businesses also will be required to provide an Ohio Supplier ID assigned by the Ohio Office of Budget and Management. If the applicant business does not currently have an Ohio Supplier ID, the business will be required to register at Supplier.Ohio.Gov. A Supplier ID is required so that grant funds can be distributed by direct deposit.

If you require assistance or have general questions about your application, our team is ready to help. Contact our restaurant practice leader, Kristin Metzger below.

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Kristin Metzger, CPA
Restaurant Practice Leader
kristin.metzger@wvco.com | 419.891.1040

Categories: COVID-19, Other Resources, Restaurant & Hospitality