The end of the fourth quarter of 2018 is coming up soon, but it’s not too late to make financial moves before the end of the year to improve your bottom line.
Review where you stand for 2018. In order to decide what actions to take, you need to know whether your SMB is having a good year or a bad one. Just because your customers are buying does not necessarily mean you’re in a solid financial position. Review your financial statements year to date to determine if 2018 is shaping up to be a good year or a bad year.
Think about tax savings. If you use the cash method of accounting—which can now be used by all businesses with average annual gross receipts of no more than $25 million in the three prior years—think carefully about how you want to handle your income and expenses between now and the end of the year. For example, if you reviewed your financials and see a good year, you may want to minimize income and optimize expenses to keep your taxes down. This can be done by delaying billing until late in the year so payment won’t be received until 2019. Conversely, increase deductible expenses by paying outstanding invoices, stocking up on supplies, and prepaying items such as insurance, rent, subscriptions (as long as you don’t prepay more than 12 months in advance, which limits deductibility).
Consider giving year-end bonuses. If this is a good year, share your hard work and good fortune with your employees by giving year-end bonuses. Determine how much the company can afford to give, factoring in payroll taxes on the bonuses.
Manage your inventory. Inventory may take up considerable capital. As the year winds down, take a hard look at what’s on the shelves so you can take appropriate action. This may include re-marketing items, holding sales (perhaps after the holiday season), returning merchandise to vendors for new items or a credit, or selling to liquidation companies.
Select health coverage for 2019. If your SMB offers this benefit to employees, shop for coverage for the coming year. Look for coverage offerings through Association Health Plans (AHPs)—group health plans available through trade associations and chambers of commerce—to lower your costs. If you are a small employer without a plan, you can consider a qualified small employer health reimbursement arrangement (QSEHRA) to reimburse employees for their individually-obtained health coverage (up to set limits).
Set up a qualified retirement plan. If you don’t yet have a qualified retirement plan, consider setting one up now. It’s a good benefit that will help with employee retention. What’s more, employer contributions are tax deductible, and you may even get a tax credit for setting up the plan. As long as you sign the paperwork for a 401(k) or other plan, you can make contributions up to the extended due date of your return. Of course, if you miss the deadline, you can still set up and fund a SEP by your extended due date. But because a SEP may not be the optimal plan for your situation, consider all plan choices now.
Make charitable donations. Being generous helps charitable organizations; it also helps your business financially. For example, if you support a local charity, your company likely will gain visibility and appreciation in the community, which, in the long run, translates into sales. Also, the cost of donations usually entitles you to a charitable contribution deduction, subject to various limitations. Or in some cases, you may be able to fully write off the cost as an advertising or marketing expense.
Make your budget for 2019. Look ahead and plan now for 2019. Factor in rising costs (e.g., pay raises for your staff, higher gasoline and travel costs, etc.). Keep in mind that there’s a higher Social Security wage base that will impact FICA costs for the company.
Schedule an appointment with your CPA. If you don’t meet regularly with your CPA, be sure to schedule an appointment now to review your tax position for 2018. This will give you time to take action before the end of the year to optimize your tax position.
Continue to monitor legislative and regulatory developments. Various measures pending on the federal, state, and local levels could impact your cost of doing business. Keep watch for possible changes requiring action before the end of the year.
According to Henry Wadsworth Longfellow: “Great is the art of beginning, but greater is the art of ending.” Finish up your 2018 on a high note!