By Steve Combs
The Controllership Group, Inc.
In this season of giving, I thought I would provide a list of action items to make your Holiday a little more relaxing and allow you to bring in the New Year with a little less stress.
Yes, It’s Always About Cash Flow
As a small business owner, you know it’s always about cash flow. As the year-end approaches, the balance between ending the year with too much cash in the bank and not having enough to pay all the bills is a delicate one. The issue is compounded with the fact that your customers and your vendors are trying to do the same. Regardless of which side of the spectrum you’re on, it’s never a good idea to ease up on collecting cash from your customers. So keep up your collection efforts throughout December. In fact there may be opportunities to collect “up front” monies from your customers as they try to play the same cash flow game.
On the outflow side of the equation, again I always encourage clients to maximize the payment terms from vendors. But as the yearend cliff approaches, don’t be afraid to establish another deductible expense by paying vendors a few days early or settle that outstanding invoice that’s been hanging out there since the summer.
Reconcile Your Accounts
I’m guessing you’re reconciling your checking account on a monthly basis, but when was the last time you reconciled your inventory accounts or payroll liability accounts or debt accounts? Reconciling your inventory account is critical to properly expensing your cost of goods sold and thus properly stating the value of your inventory.
The critical action in reconciling your debt accounts is to make sure you’ve correctly identified the interest expense from the principal payments.
Another critical area is to reconcile your payroll liabilities accounts, especially if you process your payroll in-house. You’ll need to make sure you’ve correctly processed your payroll tax deposits, both the withholdings and the actual payroll tax.
Speaking of Payroll
Ah yes, payroll. Do you know who is going to file your forms W-2 and W-3? Are you sure you have all of the necessary items for your employees’ W-2s? What about your W-2, as the business owner? A first consideration is to properly report personal auto mileage if your policy is to reimburse for all auto expenses. Make sure you are tracking all of your mileage and identifying personal versus business miles. The personal portion will need to go into your (and your employees’) W-2 as wages.
A second consideration is health insurance premiums for the more than 2% shareholder of an “S” corporation. If your health insurance plan is qualified, the total amount of the premiums must be reported in the shareholder’s W-2, Box 14. This same amount can then be deducted on the shareholder’s Form 1040, line 29, self-employed health insurance.
A final consideration for payroll is the timing of the final payroll of the year, a topic that is also a consideration in cash flow planning. Consider both the timing of the final payroll (another potential expense deduction) and the inclusion of year-end bonuses (also another deduction).
Section 179 Deduction
You’ve probably heard of the Section 179 accelerated tax deduction but in case you haven’t it is a section of the tax code that allows for accelerated depreciation of certain types of assets, thus lowering your taxable income. The types of assets qualifying for Section 179 include “tangible personal property” such as software, furniture, machinery, and equipment, but not land or buildings. The 2008 Economic Stimulus Act increased the amount of assets that are available for the Section 179 deduction from $128,000 to $250,000 for 2008. The deduction phases out for expenditures beyond $800,000. So, the action item for small business owners is to review any capital expenditures to see if they qualify for the Section 179. And secondly, to review the impact of Section 179 on that capital purchase that you have been considering. Although there are certainly non-tax factors involved, it may make sense to make the expenditure in 2008 taking advantage of the increased allowable amount and lowering the after-tax cost of the purchase.
The Fine Print
Of course, in all of these situations, please check with your accountant before making any final decision. Your particular tax situation may alter the impact of such a decision.
In the meantime, enjoy the holiday season. And count your blessings as the owner of a small business in this great country of ours.
Steve is a partner with The Controllership Group. His firm provides outsourced accounting services to small business owners, including bookkeeping, tax, and CFO-level services. He can be reached at 317-572-1228 or stevec@thecontrollershipgroup.com.
