It happens this time every year. The EPIC BATTLE, the Battle Royale. It is a Tug of War, a test of strength, a fight to the finish. What is it exactly? It is the cage match between the Tax Advisor and the Bond Manager.
Every year contractors make an important decision. The tax advisor says “It will be great for you to pay less taxes!” But the Bond Manager says “It will be great for you to pay more taxes!” Who is right?!
We understand that paying the tax man is painful. You want to hang onto your money, not throw it into that black hole known as the IRS. But paying taxes has an important beneficial effect if bonded contracts are part of the strategy for the coming year. Paying taxes can help the construction company qualify for increased levels of bonding support.
Keep in mind, the company is primarily the bond applicant. And the bond underwriter needs to be confident that the applicant will remain in business for the completion of the bonded work, and that it is strong enough to withstand the problems that, if left unresolved, would result in bond claims.
One important element in this analysis is a review of the company financial statements. In these reports the underwriter hopes to see financial strength and balance, profitability and good management. In reality, you don’t have profitability and financial growth without incurring a tax bill. So to this extent, the tax advisor and the bond manager are at odds.
Company management will make the final decision. Where is the balance point between taxes and bonds? It is a critical decision because the fiscal year-end results are an underwriting element that is considered throughout the year. It directly affects the amount of surety capacity that is offered. This will either empower the company or hinder the contractor’s ability to acquire new work for the next year.
We can help contractors make an informed decision. It is a free service we provide to all contractors, even if they are not currently our customer.
We need to review a draft copy of the fiscal year-end company financial statement. Tell us the amount of bonding capacity that is desired in the coming year. We will provide a free analysis indicating if the financial statement qualifies for the desired surety credit, or if profitability levels, net worth, and ratios (and taxes!) require adjustment. This is the contractor’s opportunity to make beneficial adjustments before the recent year is cast in stone.
KIS Surety is the national contract bond underwriting department for Great Midwest Insurance Company, a national, corporate surety with an A-8 rating. We throw all this underwriting talent at your bond opportunities and support contracts up to $10,000,000.
If you have a contract surety case that needs a fast, creative response, call us: 856-304-7348
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