Strategic Tax Planning

1
Strategic Tax Planning

• Operations Management
• Chapter 9

2
Production Design and Process Selection

• Three strategic decisions
• Sourcing locations to what extent will the
  supplier be local, regional, or foreign
• Strategic method whether the firm will seek to
  cooperate with suppliers
• Timing will the firm acquire materials just in
  time or will it keep stock on hand

3
Inventory Methods of Accounting and Includable
Amounts

• Anticipation can be used to select among a
  variety of timing options for accounting for
  inventory
• Specific identification
• FIFO
• LIFO
• Weighted average

4
Inventory Methods of Accounting and Includable
Amounts

• LIFO is best choice for tax-minimizing purposes
• If LIFO is used for financial statements, it must
  also be used for tax as well
• LIFO has no advantage if firm is NOL
• Firms can switch from LIFO to FIFO if it has IRS
  approval

5
Amounts of Inventoried Costs

• A firms inventory is carried at full absorption
  cost
• Inventory costs include
• Direct materials
• Direct labor
• Share of manufacturing overhead
• Tax also includes some general, administrative,
  and selling expenses

6
Inventory Costs and Decision Making

• Inventory-related decisions
• Number of units to make
• Make or buy decisions
• Accepting additional orders
• Taxes are a component of inventory costs and
  should be considered in decision-making

7
Strategic Capacity Planning Plant Versus People

• Making a choice about human versus mechanized
  production in service, manufacturing, and
  merchandising firms
• Choice depends on cost and productivity
• The difference between labor and capital is the
  timing of deductions
• Higher payroll taxes can result in increased
  labor costs
• The timing of an adjustment is often associated
  with anticipated tax policy changes

8
Operations Management from a SAVANT Perspective

• Using Nutraherb, Inc. as an example
• Strategy Acquisition enables Nutraherb to
  control timing, quantity, and quality of supply
• Anticipation No tax law changes appear relevant
• Value-Adding The firm can see dollars by cutting
  the cost of materials and accounting for tax
  issues
• Negotiating May have to negotiate with managers
  to agree on a low price
• Transforming Targets earnings will be
  transformed into nontaxable income by deferring
  payment of dividends