Frankly, the best advice you can read regarding your company’s expense management is this: Make time between now and the middle of December to talk with your accountant or financial adviser.
If you do that, your chances of getting it right in terms of cash flow management, taxes, and business investment are good.
But it doesn’t hurt to have a few notions in mind before you review all your options and decide which actions to take.
Here are six questions to ask when preparing to get you company’s financial house in order for next year.
1. Did the company make money?
Hopefully, it did. But if you’re way in the black, are there significant purchases or investments you should make prior to the end of the year?
And what about your personal situation? If you’re likely to be in the same (or a lower) tax bracket in 2014, postponing or deferring income might make sense.In terms of your employees, you can’t alter the payroll schedule, but you can accelerate or postpone bonus payments in order to secure better tax treatment for the company.
2. Are you taking full advantage of depreciation schedules?
In regular depreciation, the costs associated with buying a piece of equipment is deducted over a certain number of years. This offsets a portion of your company’s income and lowers its tax liability.
The cost of acquiring the equipment is “written off” over a number of years, offsetting part of your company’s income and lowering its tax liability. Depreciation rules are implemented by the IRS and depend on the type of equipment in question. Depreciation schedules are published on the IRS website, but check with your accountant to make sure you’re using the right one.
Obviously, to start depreciating a piece of equipment in the current tax period, it must be purchased by the end of the year.
3. Are Section 179 deductions appropriate for your company?
Even better than regular depreciation, Section 179 deductions let you deduct 100% of the purchase price of equipment in the first year. For 2013, up to $500,000 in purchased equipment is eligible.
Congress has not acted to extend the Section 179 deductions at the $500,000 level. 2013 could be your last chance to deduct up front this much of an equipment investment for a very long time.
4. Are you taking advantage of low interest rates?
Granted, the economic recovery isn’t in any danger of overheating, but sooner or later the historically low interest rates persistent over the last couple years are destined to nudge up.
Are there lines of credit you can re-negotiate at better rates? What about long-term capital or construction investments? If you were considering a move, it’s unlikely that you’ll find cheaper money a couple years from now.
Leasing terms – even for longer term arrangements – tend to not be as flexible, but it can’t hurt to ask.
5. Are your retirement plans properly funded?
Actually, many qualified retirement plans give you until April to make tax-deductible and advantaged contributions for the prior calendar year, but you should still make sure you’re managing expenses properly to ensure you can make adequate investments. Besides, the sooner you contribute, the sooner (hopefully), your money starts growing in a tax-deferred account.
For more information on the SEP-IRA, which is a very popular retirement plan option for small businesses owners, click here.
6. Are your charitable contributions where you want and need them to be?
The holiday season is probably the best time to help out your favorite not-for-profit. If you’re sitting on a very profitable year and have more cash on hand than anticipated, it might be the time for bumping-up your generosity.
You can always give cash, but don’t forget that other useable items like vehicles, office equipment and the like can also be donated, and you can deduct the fair market value at tax time. Just be sure to get a receipt for your records.
What expense management questions do you have? Leave yours in the comments below.
Having trouble with cash flow management? MP Star Financial provides invoice factoring services and other asset-based lending services. For more information, call (800) 833-3765, extension 150.