How does Management Recruiters account for income taxes?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
nd economic feasibility, and estimated economic life.
Provision for Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those deferred amounts. We record valuation allowances for deferred tax assets that more likely than not will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We analyze our filing positions in all jurisdictions where we are required to file returns and identify any positions that would require a liability for unrecognized income tax positions to be recognized. If we are assessed penalties and/or interest, penalties will be charged to selling, general, and administrative expense and interest will be charged to interest expense.
The federal Work Opportunity Tax Credit ("WOTC") is a source of fluctuation in our effective income tax rate. The WOTC is designed to encourage the hiring of workers from certain disadvantaged targeted categories and is generally calculated as a percentage of wages over a twelve-month period up to worker maximum by targeted category. We estimate the amount of WOTC we expect to receive based on wages certified in the current period and exclude all credits pending certification. WOTC is authorized until December 31, 2025.
Business Combinations
We account for business acquisitions under the acquisition method of accounting by recognizing identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquired business at their fair values. We record the portion of the purchase price that exceeds the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed, if any, as goodwill. Any gain on a bargain purchase is recognized immediately. We recognize identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognized by the acquiree prior to the acquisition. We expense acquisition related costs as we incur them. Our acquisitions may include contingent consideration. Any contingent consideration is measured at fair value at the date of acquisition.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 65–66)
What This Means (2024 FDD)
According to the 2024 FDD, Management Recruiters accounts for income taxes using the asset and liability method. This approach involves recognizing deferred tax assets and liabilities for the future tax consequences resulting from differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as operating loss and tax credit carryforwards. These deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when those deferred amounts are recovered or settled. Management Recruiters records valuation allowances for deferred tax assets that are unlikely to be realized. Any changes in tax rates will affect deferred tax assets and liabilities and are recognized in income during the period that includes the enactment date.
Management Recruiters analyzes its filing positions in all jurisdictions where they are required to file returns to identify any positions that would necessitate recognizing a liability for unrecognized income tax positions. If the company is assessed penalties or interest, penalties are charged to selling, general, and administrative expenses, while interest is charged to interest expense.
The federal Work Opportunity Tax Credit (WOTC) can cause fluctuations in Management Recruiters' effective income tax rate. The WOTC encourages hiring workers from certain disadvantaged targeted categories and is generally calculated as a percentage of wages over a twelve-month period, up to a worker maximum by targeted category. Management Recruiters estimates the amount of WOTC they expect to receive based on wages certified in the current period and excludes all credits pending certification. The WOTC is authorized until December 31, 2025. At December 31, 2023, Management Recruiters had a federal net operating loss carry-forward of approximately $209 thousand available to offset future federal taxable income. Management estimates that their effective tax rates were approximately 17.3% and 13.7% for 2023 and 2022, respectively.