Make the Most of 2018 with Year End Planning

It’s that time of the year. We have less than one month left to wrap it all up. In today's episode of the IT Provider Network Podcast, I want to walk you through some of the things we do to plan for the upcoming year.

 

December is always a crazy month for us. We are a Sub Chapter S corporation which is a type of tax structure in the US that requires that your corporate year end on the calendar year. So most small businesses are scrambling in December to wrap everything up and get their financials in order to minimize their tax position.

We are no exception.

What I want to share with you is a high-level overview of what we do to close out and plan for the upcoming year. It consists of three main tasks

* Cleaning up the financials and getting the books in order

* Reflecting on what you have done during the year to help us going forward.

* Making Plans for the next year based on what we have learned.

Getting your our House in Order

Let's get right into the financial work that we need to do at the end of the year. Just like life, after January 1st there are rarely any do-overs. So you need to make sure you have everything in your business the way need it to be before you close out the year.

* Here are some financial things you should take care of, and let it be written – let it be said. I AM NOT A FINANCIAL ADVISOR.

If you are the owner and you are also a W2 employee then you need to make sure you have satisfied the “safe harbor” requirements of the IRS or that you have made sufficient estimated tax payments to cover your W2 income and any other disbursements from the company. This will ensure you don’t pay any penalties.

* If you have a company retirement plan like a 401k or IRA. Make sure you are taking full advantage of the tax savings that this affords you. If you are over 50 (like at least one of us) then you can even do catch-up contributions. Today that means you can sock away an extra 6 grand.

* If you were lucky enough to have a profitable year, you need to look at your tax liability and see what you can do to minimize your exposure. Talk to your accountant about this although they usually aren’t much help. A common strategy is to get your bank account down as low as possible before year end to minimize the tax liability. This is sometimes a double edge sword. You might have loan covenants or guarentees to the bank that you are going to have some cash. You also might need some cash to actually run your business in the next year!

Paying yourself a bonus, taking a shareholder distribution, repaying your owner loan, paying down credit card balances, paying down credit lines, or paying off other debt will not create deductions that result in tax deferrals. These strategies are simply re-distributing the money that belongs to your business, into other forms that are still tied to the company in some way, and thus don't qualify as operating expenses. If you are going to put this plan in place, you must actually be paying expenses or purchasing equipment that goes toward improving or maintaining the operation of your business.

* Go through your income statement and really analyze your “goes-intas” and “goes-outas” . See where you are making money and where you aren’t. See where the holes in the bucket are and were you are spending your cash. Remember the old saying,

“Revenue is Vanity, Profit is Sanity, and Cash Flow is King”.

* Look at all your recurring charges. Products and services, you are using or not using in your business. Now might be a good time to pre-buy for next year or to cancel if you are not getting value for the expense.

* Gifts or Cards If you are going to send your customers a holiday gift you should have this ready to go by the 2nd week in Decem...