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December 6, 2022

Accounting News Roundup: Tax Planning Over the Summer and Stock-Based Compensation | 04.21.16

Tax Planning

With busy season over, a lot of you would like to relax a little, get away from work for awhile. But your clients? Nope! They need to stay on top of this stuff:

Now that tax year 2015 is in the rearview mirror, it's time to turn your attention to the return you'll be filing next year.

Experts say most consumers' efforts to minimize their bill are too little, too late.

"Tax planning is more about whittling over time than grand gestures at the last minute," said certified financial planner Lynn Ballou, a regional director with EP Wealth Advisors. "It's a very complicated dance."

It's kinda like when a teacher encourages students to study over the summer; you're hoping they'll take the initiative to learn some things and come back next year ready to hit the ground running. This is a false hope not only for teachers but for CPAs who wish their clients would just spend just a little bit of time thinking about their tax situation between now and next April. And speaking of false hope, here's someone wasting their breath:

One of the first places to mine for tax moves is your latest return, said Melissa Labant, director of tax advocacy for the American Institute of Certified Public Accountants. Start with the big picture – did you have an outsize refund or bill? Consider adjusting your tax withholding or estimated tax payments.

"The idea is to come close to breaking even," she said.

Oh, it is? You'd think most taxpayers wouldn't want to give the federal government an interest-free loan, but thanks to H&R Block's annual advertising blitz about REFUND SEASON and GET YOUR BILLIONS BACK, AMERICA, most don't seem to mind.  

Short Sellers

Carson Block, the founder of research firm Muddy Waters, has made quite a name for himself and his firm by short selling companies who engage in accounting shenanigans. They're up to it again today after questioning German advertising firm Stroeer SE's growth:

"We have serious concerns about Stroeer’s governance, and these concerns are inextricably linked to our views on the company’s profitability and cash flows,” Muddy Waters said in the report. “We believe that Stroeer has substantially overstated its organic growth figures in 2014 and 2015.”

"[Block's] theme for 2016 is shorting 'heavily financially engineered companies,' " so if that sounds like a company you know, uh, fair warning, I guess? 

Non-GAAP Worries

One of the most popular non-GAAP maneuvers that people like to worry about is the exclusion of stock-based compensation. Warren Buffett has been calling attention to it since we were all in short(er) pants, including this year:

“Stock-based compensation is the most egregious [non-GAAP] example,” Buffett said. “The very name says it all: ‘compensation.’ If compensation isn’t an expense, what is it? And, if real and recurring expenses don’t belong in the calculation of earnings, where in the world do they belong?”

Accordingly, the Oracle of O isn't going to be too impressed with the news that tech companies have been paying out a lot in stock compensation:

Equity-related remuneration amounted to $30.4 billion in 2015, or 12.1% of pre-tax income at the 67 technology companies in the S&P 500 in 2015, according to data compiled by S&P Global Market Intelligence. That’s up from 9.9% the year before and 9.4% in 2013.

In 2011, those S&P 500 technology companies paid out the equivalent of 8.3% of pre-tax earnings in stock-based compensation, a recent low, according to S&P.

Some notable companies include Citrix Systems and Facebook, who paid 47.3% and 47.9% of their pre-tax income in stock-based compensation respectively. One venture capital guy is concerned-ish, saying that the cost of stock-based comp is real, "If they stopped paying it tomorrow, a lot of people would leave." Probably!

Previously, on Going Concern…

I wrote about financial reporting complexity.

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