KPIs: Measuring the Right Things

KPIs: Measuring the Right Things

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How do you measure your business’s performance?

Business owners have access to volumes of data to help them make the best decisions. To ensure your business is running at peak performance, it is a must to measure and monitor key performance indicators (KPIs).

The goal – to save you time and money.

Step 1: Decide what KPIs are most critical for your business. 

We recommend each department of your business brainstorm what measurements are important to them and how best to monitor them.

Step 2: Determine metric(s) to measure the information.

Base metrics may revolve around quality, cost, delivery, safety, morale or other items.

Quality Based Metrics:

  • Number of defects
  • First pass yield
  • Ratio of first run acceptance
  • Number of units returned to units shipped
  • Total cost of quality
  • Number of suggestions per year per employee
  • Rate of implementation of suggestions
  • Lead-time
  • Time spent on improvement
  • Number of services reperformed
  • Other items specific to your industry

Cost Based Metrics:

  • Scrap reduction in pieces or dollars
  • Productivity
  • Actual hours incurred to standard hours/budgeted hours
  • Actual overtime hours to allowed overtime
  • Overtime per unit manufactured
  • Material handling cost
  • Stock keeping cost
  • Number of suppliers with price breaks
  • Activity cost of expediting
  • Other items specific to your industry 

Delivery Metrics:

  • On-time delivery rate
  • Machine down time
  • Ratio of setup time to run time
  • Total travel distance
  • Repeat visits to operations
  • Work cell performance
  • Items completed on schedule
  • Work in process reduction
  • Number of work orders per direct employee
  • Number of skills (worker flexibility)
  • Number of schedules changed
  • Past dues not on last week’s report,
  • This week’s new expedites
  • De-expedites of last week’s expedites
  • Other items specific to your industry

Safety Metrics

  • Recordable injury (OSHA)
  • Lost time injury (OSHA)
  • Hours without a lost time injury
  • Days without a lost time injury
  • Near misses
  • Number of safety/ergonomic improvements

Morale Metrics

  • Headcount vs. vacancies
  • Employee turnover rates
  • Absenteeism
  • Applications for employment
  • Employee satisfaction

The list of possible metrics is endless. What elements make a good metric?

  1. Relevant
  2. Understood by all
  3. Based on business objectives
  4. Easy to measure
  5. Accurate

Step 3: Identify appropriate benchmarks for KPIs.

Benchmarks may include industry information, budgets, strategic plans, etc.

Step 4: Set performance goals.

Communication of the metric goals is important. Since the overall goal is to improve performance, save time and money, it is important to align individual performance with chosen KPIs. We recommend setting “stretch goals” in order to maximize improvement.

Step 5: Review.

Each KPI should be regularly reviewed to ensure it is providing valuable information and driving the desired behavior. 

What are the key components of a KPI plan? 

  1. Develop a KPI title and a brief description.
  2. Determine goals and objectives the metric is linked to.
  3. Document an understanding of what decisions may be made based on the analysis of the metric.
  4. Assign who will make those decisions.
  5. Allocate who will collect the data.
  6. Determine how the data will be collected and how often.
  7. Assign who reports the data and how it is reported.
  8. Determine who analyzes the data and how it should be analyzed.
  9. Document lowest and highest acceptable numerical values, target goal(s).

KPI plans are meant to change behavior. It’s important those involved understand the needs and benefits of change. Metrics alone do not change behavior, management MUST analyze, monitor and communicate results to drive improvement.

Need help getting started?

Pick a few KPIs and execute them well before adding additional. If a metric is not working, modify or try a different measure. Smith Schafer is an ongoing source to help you grow your business with strategies to help you increase profits, identify opportunities and much more!

New W-4 For 2020

New W-4 For 2020

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The Tax Cuts and Jobs Act of 2017 resulted in many changes for taxpayers. One of which is the elimination of personal and dependency exemptions. The Internal Revenue Service (IRS) redesigned the W-4 form and no longer uses the concept of withholding allowances. The changes are expected to increase transparency, simplicity and accuracy of the withholding system. Read on for additional information regarding these changes, as well as links to forms and frequently asked questions.

Federal W-4 Form

The new form was effective January 1, 2020. Current employees are not required to complete a new W-4 form. The employee’s current form on file will be used to calculate withholding. Employees hired January 1, 2020 or later must use the new W-4 form. Employees claiming to be exempt from withholding will be required to complete the new form.

The form is divided into five steps. The only two steps required for all employees are step one and step five.

  • Step 1 – Requires employee personal information (i.e. name, address, social security number, filing status).
  • Step 5 – Requires employee signature and date.
  • The employee can complete steps 2 – 4 if applicable.
    • Completing steps 2 – 4 – results in withholding more accurately matched to tax liability. If the employee chooses not to complete steps 2 – 4, the withholding will be computed based on the filing status’s standard deduction ($24,800 for married filing jointly, $12,400 for single, and $18,650 for head of household) and tax rates, with no other adjustments.

Employees are encouraged to review current withholding selections throughout the year. The IRS provides a tax withholding estimator to assist in calculating estimated withholding as well as provide suggestions for completing a new W-4.

The IRS created a new publication – Publication 15-T, Federal Income Tax Withholding Methods – to explain how withholding is calculated with the prior year and the 2020 Form W-4.

The IRS also created a FAQ’s page to help address questions on the new 2020 Form W-4.

Each payroll software provider has addressed the changes in a different manner. Most are allowing employers to toggle between the 2019 withholding method and the 2020 withholding method on an employee by employee basis.

Minnesota W-4MN Form

In 2020, employees who complete a federal Form W-4 must also complete a Form W-4MN, Minnesota Employee Withholding Allowance/Exemption Certificate, in order to determine their Minnesota income tax withholding. If the employee does not complete the Form W-4MN, employers withhold Minnesota income tax as though the employee claimed single filing status with zero allowances.

Employers can still use the allowances claimed on the employee’s federal Form W-4 if the employee used a 2019 or earlier version for Form W-4 and does not want to change their withholding for 2020.

If an employee completes a 2020 Form W-4, they must also complete a Form W-4MN to determine their Minnesota withholding allowances.

Employees must also complete the new Form W-4MN if they:

  • Claim fewer Minnesota withholding allowances than federal allowances on a 2019 or prior-year Form W-4.
  • Claim more than 10 Minnesota withholding allowances.
  • Request the deduction of additional Minnesota withholding each pay period.
  • Claim to be exempt from Minnesota income tax withholding. Your employees must meet one of the requirements listed in section 2 of Form W-4MN.

Many states have their own version of the W-4 form. Here are links to W-4 forms for Minnesota’s neighboring states:

Wisconsin: Click for form
Iowa: Click for form
North Dakota: North Dakota does not have a form comparable to the Federal Form W-4. The information on the W-4 is also used for North Dakota income tax withholding purposes.

If you have questions regarding your business and tax situation, click here to contact us.

School Bus Companies – Tax Reform Q&A

School Bus Companies – Tax Reform Q&A

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On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA), also known as tax reform. The $1.5 trillion tax legislation is the biggest change to the tax code since 1986. The implications for school bus companies are complex so we have summarized the most commonly asked questions related to the tax reform:

Q: How does the corporate tax rate reduction impact school bus companies?

A: The corporate tax rate reduction from a top marginal rate of 35% to a flat rate of 21% provides significant tax savings for school bus companies. The reduction in individual tax rates, along with the addition of the 199A deduction, creates tax savings for bus companies operating as entities other than C-Corporations. The additional savings provides opportunities for school bus companies to retool their fleets by purchasing new buses, making repairs to the existing fleet and hiring additional drivers. 

Q: How does Bonus Depreciation and Section 179 provide opportunities for school bus companies to reduce taxable income by purchasing new busses?

A: The TCJA updated its provisions for bonus depreciation so major asset purchases, with useful lives of 20 years or less, may be fully deducted in the year of purchase. This allows school bus companies to deduct 100% of the purchase price of school their buses. This applies to the purchase of either new or used school buses. There is also no limitation on the amount of bonus depreciation companies may take on buses purchased during the tax year.

Section 179 expensing is another option for fully expensing school bus purchases. Section 179 expensing is limited to a company’s taxable income, so it would apply if your bus company has made a lot of money or if the amount of bonus depreciation available to be used from asset purchases would significantly overrun income. In 2019, companies may expense up to $1,020,000 in new asset purchases under Section 179. The limit does not begin to phase out until greater than $2,550,000 of total assets are placed in service. 

Q: How does tax reform impact deduction of interest expense?

A: Tax reform puts limitations in place for the net amount of business interest expense that can be deducted in a tax year. The limitation does not apply to school bus companies with average annual revenues of less than $25M for the past three tax years. For school bus companies with average annual revenues greater than $25M, business interest is limited to the sum of 30% of their adjusted taxable income, plus business interest income plus any floor plan financing interest.  Any disallowed interest expense would carry over to the next tax year. It would then be treated as business interest paid or accrued in that year subject to the same limitations. 

Q: Are there changes to the deductibility rules for meal and entertainment expenses?

A: There were revisions to the rules pertaining to the deductibility of meals and entertainment with tax reform. Prior to the passage of the TCJA, 50% of the cost of meals and entertainment were generally deductible for tax purposes with a few notable exceptions. Tax reform generally disallows tax deductions for costs associated with entertainment related to existing business contacts or prospective clients. The costs of meals themselves provided for business clients continue to be 50% deductible for tax purposes. This means it is important to document and segregate the costs of meals from the costs of entertainment. The provisions for meals that were 100% deductible prior to tax reform remain unchanged. This includes snacks provided for employees on the business premises, meals furnished for employee events (i.e. annual Christmas Parties) and meals furnished for the convenience of employers.

Q: What aspects of tax reform should school bus companies keep in mind when doing long-term tax planning?

A: The same tax savings opportunities from tax reform available in 2019 will likely remain in place for the next few years. Barring any changes by Congress to the existing law, the rules for 100% bonus depreciation do not begin to phase out until 2023. School bus companies still have a few years to fully deduct their bus purchases. Bonus depreciation is then slated to phase out by 20% each year until it completely phases out in 2027. 

NOTE – MINNESOTA TAX LAW CONFORMITY

The Minnesota Legislature recently passed a tax bill conforming or partially conforming several Minnesota tax laws to changes made under prior Federal tax bills. However, complexities remain around Minnesota’s treatment of the tax reform.

Questions?

It is important to work with a qualified advisor to help you leverage these opportunities. If you have questions about the changes or need assistance with a tax, accounting or audit issue, Smith Schafer & Associates can help. Our Transportation Group, comprised of numerous professionals, is committed to serving over 110 Minnesota transportation entities. Smith Schafer has the experience and understanding of the transportation industry to make a lasting positive difference in your future success.

8 Small Business Tax Deductions for 2020

8 Small Business Tax Deductions for 2020

Reading Time: 5 minutes

Are you confident you are doing everything to minimize taxes for your business? One of the best ways to reduce tax liability is to ensure you are claiming all tax deductions available.

Tax Deduction: An expense subtracted from your taxable income to reduce the amount subject to tax.

  • The expense must fit the IRS criteria of a tax deduction.
  • A deduction should not be confused with a tax credit.
    • A tax deduction reduces taxable income.
    • A tax credit reduces the amount of taxes owed.

Here is a List of 8 Small Business Tax Deductions:

1. Qualified Business Income Tax Deduction

Tax Reform created a new deduction for pass-through business owners. It is called the Qualified Business Income Deduction, also called a Section 199A deduction or QBI deduction. According to the IRS, “QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business. Only items included in taxable income are counted.”

This deduction, in certain situations, may provide up to 20% tax deduction on qualified business income for eligible partnerships, S corporations and sole proprietorships. For taxpayers with taxable income exceeding $321,400 for a married couple filing a joint return, or $160,700 for all other taxpayers, the deduction is subject to limitations.

These limitations include:

  • Whether the business is classified as a service trade or business
  • Taxpayer’s taxable income
  • The amount of W-2 Wages of the business
  • Unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business

2. Section 179 Depreciation Deduction

In 2019, businesses may deduct up to $1.02 million of cost of qualifying property placed in service during the given tax year. In addition, as a business owner, you may purchase up to $2.55 million in business property qualifying for the Section 179 deduction each year before the benefit is phased out.

Example: ABC Corp. spends $400,000 on equipment and off-the-shelf computer software equipment in 2019. The business can deduct $400,000 this year on those purchases. To qualify for this Section 179 tax treatment in 2019, the equipment or software must be purchased and placed into service by December 31.

3. Bonus Depreciation Tax Deduction

Tax Reform allows businesses to fully expense certain capital expenditures instead of depreciating them over several years.

Examples of eligible expenses are:

  • • Office furniture
  • • Equipment
  • • Machinery
  • • Computers
  • • Software

These expenditures may be fully expensed starting with business assets placed in service after September 27, 2017. Bonus depreciation will begin phasing out for assets placed into service after December 31, 2022.

4. Meals & Entertainment Deduction

Business owners may deduct 50% of food and beverage related to operating a trade or business, with a couple conditions:

  • The expense is not lavish or extravagant under the circumstances.
  • The taxpayer is present when the food or beverages are furnished.

Note: Expenses related to entertainment, amusement or recreation no longer fall under the 50% deduction. The Internal Revenue Service (IRS) will not allow the entertainment disallowance rule to be circumvented through inflation of food and beverage costs.

Exception to the Rule: Expenses related to business meetings for employees, stockholders, agents or directors are fully deductible. Therefore, entertainment expenses related to meetings, activities, or events for the benefit of employees are fully deductible. This may include events such as shareholder meetings, holiday parties, and summer outings. If these events remain as COMPANY ONLY functions, these rules should apply.

5. Health Insurance Expenses

For S-Corporations, owner-employee taxpayers, who own more than 2% of the S-Corporation stock, may deduct 100% of the amount paid for medical insurance for himself or herself, a spouse and dependents under the health plan established by the S-Corporation.

A more than 2% shareholder’s wages from an S-Corporation are treated as the shareholder’s earned income. A deduction for health insurance premiums may not exceed an individual’s earned income from the trade or business. Certain exceptions apply to group health plans.

6. Vehicle & Travel Tax Deductions

Automobile usage tax deductions are some of the most scrutinized deductions on business filings, but it may be worth it if you travel frequently for work. There are two ways to claim this deduction:

  • Standard Mileage Rate. Total all the miles driven for your business and multiply by the IRS’s standard deduction rate to figure out your deduction. As of 2019, the standard mileage rate is 58 cents per mile.
  • Actual Car-related Expenses. This option may entail a little more work. If you keep very detailed records throughout the year, you can add up how much your car depreciated and what you spent on gas, repairs, tires, tune-ups, car insurance and registration fees. That will be your deduction, instead of the mileage.

The option you choose depends on how economical your car is, how much it cost you to drive it throughout the year and how well you documented your car-related expenses.

For a travel trip to qualify for a travel deduction, it must meet the following criteria:

  • Your responsibilities during the trip must keep you away from your regular place of business for substantially longer than a regular day’s work.
  • You need sleep or rest to meet the demands of your work while away.

As with all these deductions, it is important to keep receipts and records of all business travel expenses you plan to deduct in case of an audit.

7. Home Office Tax Deduction

You may deduct expenses for the business use of your home, which includes utilities, mortgage interest, insurance, repairs and depreciation.

Note: This deduction allows business owners to deduct $5 for every square foot of your home office, up to a maximum of 300 square feet.

Office supplies is also deductible such as printer ink, pens, software, a new laptop and much more.

8. Charitable Deductions

Your business may donate to charity and take a deduction for it. In general, contribution to charitable organization may be deducted up to 60% of adjusted gross income, however, there are limitations. If you donate property, you may deduct the fair market value of the it.

Note: Some of the tax deductions in this list may not be available to your business so consult with your CPA before claiming a deduction on your tax return.

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What is a standard deduction? The standard deduction is a deduction of a fixed dollar amount, adjusted each year for inflation, reducing a taxpayer’s taxable income.

Standard Deduction

  • Married Filing Joint or Surviving Spouse – $24,400
  • Head of Household – $18,350
  • Married Filing Separately or Single – $12,200
  • Age – If you are age 65 or older, you may increase your standard deduction by $1,600 if you file Single or Head of Household. If you are Married Filing Jointly and you OR your spouse is 65 or older, you may increase your standard deduction by $1,300. If BOTH you and your spouse are 65 or older, you may increase your standard deduction by $2,600.
  • Blindness – If you are legally blind, you may increase your standard deduction by $1,650 if filing Single or Head-of-Household. If you are Married Filing Jointly and you OR your spouse is blind, you may increase your standard deduction by $1,300. You may increase your standard deduction by $2,600 if BOTH you and your spouse are blind.

Proactive Tax Strategies

Partner with an experienced team of CPAs to help you create saving opportunities both now and in the future. We will work closely with you to evaluate your situation and recommend the best approach to lower the current year’s tax liability and maximize savings from allowable deductions, so you can focus on growing your business.

VIDEO: 4 Tax Items Impacting Transportation Industry in 2020

VIDEO: 4 Tax Items Impacting Transportation Industry in 2020

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Our tax professional in the industry, Kim Mahanna discusses the main items affecting the transportation industry in the new year.
Click below to watch the short video. 

Questions?

Whether it’s negotiating fuel surcharges or dealing with leasing sales tax and fleet maintenance, Smith Schafer has the experience and understanding of the transportation industry to make a lasting positive difference in your future success. Our Transportation Group, comprised of numerous professionals, is committed to serving over 110 Minnesota transportation entities