Last Ditch Tax Tips for the Year's End
Most of my clients call at some point in December and ask, "What can we do to reduce our tax liability?" I'm always happy to hear that question, because it means they've made enough during the year to be worried! So what can you do in the last days of December to reduce your tax bill?
Revisit your 2008 accounting BEFORE the year ends. Most companies don't really examine their books until well into the following year as the tax crunch begins to loom large. It's important as part of your year-end business strategy to have a good understanding of your company's financial situation before the year is over. That way you not only ensure that your books are accurate, you also have the information you need to 'guesstimate' your tax liability and make last minute decisions about spending, giving and deposits.
Examine your inventory. Inventory write-offs can be significant. The drop in market value of any inventory you have on hand can potentially provide your company with deductions. Depending on your accounting methods, you may also want to track any goods that have been damaged or have become obsolete.
Put money into a retirement plan. This is the time of year to make payments into your retirement plan or set up a final contribution before the end of the year to reduce your income. You'll have to check the contribution limits for your type of plan and decide what your budget will allow. 401(k)s, KEOGH plans, Roth IRAs or SEPs are all great places to shelter some funds for future years. As always, you need to discuss the best strategy with your financial planner or accountant.
Defer income into 2009. Any payments your business can receive during the first week of January as opposed to December will cut your tax bill. Every cent deferred until January 2009 will not owe taxes until April 2010. Your specific deferral strategy should be driven by your projected annual profits and legal structure (LLC, partnership, corporation, etc). Depending on your income tax rates in the foreseeable new year, deferral of income can make good sense for many sole proprietors, partnerships, LLC's, and S corporations.
Give a little bit away. Charities are hurting right now, and companies that are doing well can benefit from making last minute donations. Think about donations you may have planned for 2009 and push them back into 2008. Make sure you get a receipt for all tax deductible gifts.
Boost your Expenses. This sounds nutty, but if your cash flow allows you to spend at the end of the year you can save a bundle on your taxes. Purchase items your business will require in the immediate future to maximize deductions for this year. If you can see a need for goods and services in the first quarter of the new year, pay for them now and let those expenses count for 2008. Consider stocking up on paper, printer cartridges and other office items. Order promotional materials like flyers and business cards. Pay your January bills before the new year in areas such as phone services, subscriptions, insurance, rent and utilities. Get repairs made and book 2009 travel early. Buy any new office equipment or furniture you need. (You do have to weigh whether or not it is best to take a write off now or spread out the depreciation over years, but buying fixed assets can be a great tax reduction strategy.)
Every situation is unique, and each business owner has to decide whether or not it makes sense to reduce tax liability in the current year. Sometimes if you are projecting increasing sales it's a better call to just pay your tax bill and not make future tax burdens heavier, but if you are concerned about your tax liability for 2008 these are some great tips that can help you save money!
Sunday, December 28, 2008
Sunday, December 21, 2008
Take the Long View
Recent downturns in the economy are generating a lot of negative talk and fear in the business world. While I don't want to pretend that some challenges don't exist, I'm also encouraging clients to be positive, avoid panic and continue to take the steps that have made them successful in the past. So, look beyond today and take the long view.
Here is my brief synopsis of the threats and opportunities that exist in the marketplace today...
1. Business isn't a straight upward curve! We Americans are an optimistic bunch and tend to expect to win more often than we lose; however, it is folly to think that any company, stock, industry or individual person will ALWAYS WIN. Things naturally fluctuate, and there will be times of plenty and times of belt tightening. It's best to just accept the inevitability of lean times, have contingency plans in place, and not allow yourself to be shocked or shattered that every year is not infallibly better than the last.
2. Economic downturns cull out the competition. Now you don't want to BE one of the companies that flops, but seeing low level players with poor quality, inefficient systems and bad marketing strategies fail shouldn't make strong, stable businesses get scared. Let some of your competitors file for bankruptcy! What do you care? Just make sure you are ready and waiting to snatch up their customers and boost your own market share. Recessions are the business world's version of 'survival of the fittest' and they can raise the performance of entire sectors through a healthy separation of wheat from chaff.
3. Don't stop doing the things that work. Panic can cause companies to seize up... to stop focusing on what is going right, to drop future plans, to abandon new product development, to stop hiring, to cease marketing. While you don't want to waste money in a recession, you don't want to stop investing in the future either. So balance risk with wisdom and keep doing the things that have made your business thrive over the years.
4. Focus on controllables - not uncontrollables. We tend to spend a lot of time pondering things we cannot change. You and your team cannot personally alter the outlook for your industry, or change a stock price, or halt foreclosures, but there are a myriad of small things that are completely within your grasp. Keep your eye on the controllables and invest your time, energy and money on activities that matter in your little world and will make a difference in the bottom line at the end of the day.
Here is my brief synopsis of the threats and opportunities that exist in the marketplace today...
1. Business isn't a straight upward curve! We Americans are an optimistic bunch and tend to expect to win more often than we lose; however, it is folly to think that any company, stock, industry or individual person will ALWAYS WIN. Things naturally fluctuate, and there will be times of plenty and times of belt tightening. It's best to just accept the inevitability of lean times, have contingency plans in place, and not allow yourself to be shocked or shattered that every year is not infallibly better than the last.
2. Economic downturns cull out the competition. Now you don't want to BE one of the companies that flops, but seeing low level players with poor quality, inefficient systems and bad marketing strategies fail shouldn't make strong, stable businesses get scared. Let some of your competitors file for bankruptcy! What do you care? Just make sure you are ready and waiting to snatch up their customers and boost your own market share. Recessions are the business world's version of 'survival of the fittest' and they can raise the performance of entire sectors through a healthy separation of wheat from chaff.
3. Don't stop doing the things that work. Panic can cause companies to seize up... to stop focusing on what is going right, to drop future plans, to abandon new product development, to stop hiring, to cease marketing. While you don't want to waste money in a recession, you don't want to stop investing in the future either. So balance risk with wisdom and keep doing the things that have made your business thrive over the years.
4. Focus on controllables - not uncontrollables. We tend to spend a lot of time pondering things we cannot change. You and your team cannot personally alter the outlook for your industry, or change a stock price, or halt foreclosures, but there are a myriad of small things that are completely within your grasp. Keep your eye on the controllables and invest your time, energy and money on activities that matter in your little world and will make a difference in the bottom line at the end of the day.
Friday, December 12, 2008
Clarity of Vision
Einstein once said “the definition of insanity is doing the same thing over and over again and expecting different results”. Think about that statement for a moment and ask yourself, ‘Does this quote apply to the way I run my company?’
Most businesses that continually beat their head against a wall suffer from a profound lack of vision. Everyone engages in frenzied efforts to succeed (always working longer and trying harder), but because people don’t see the big picture or understand the true value they bring to customers, their quarterly profit and loss statements don’t reflect the intensity of their effort.
Here’s the reality… trying harder isn’t usually the solution to achieving more. In fact, it might be a big part of the problem. Let’s examine together the path to clarity of vision.
First and foremost, what is this Holy Grail we call vision? It’s pretty simple really, and boils down to a few primary considerations: Why are you in business? What is so great about what you do or make? What impact do you want your business to leave on the world?
Now you might be able to pop out some pat answers to those questions without really thinking about them, but vision is a critical component of your professional success and deserves more attention. In order to create truly visionary responses to those basic questions, you have to get outside of your comfort zone and slow down. Before you even begin to draft a vision statement, I suggest that you back off of your to-do list, quit trying harder, and pull some wise people around you to help bring an outside perspective into the conversation. Think beyond goals and money and tasks.
It’s very important when stepping into the role of the visionary to suspend disbelief and allow yourself to brainstorm outside the bounds of common sense. Vision isn’t mission! Let me repeat… Your vision isn’t an expanded version of your mission statement. Your mission statement should rightly be grounded in the present and directly related to the values and standards that will help you take action in the upcoming months and years, but your vision must be so much more.
Your vision is your enduring purpose; the fundamental reason for an organization’s existence beyond just making money. It is a perpetual guiding star on the horizon and does not change over time. For example, NASA’s vision is “advancing man’s capability to explore the heavens.” In essence, our vision is a mental picture of the future we wish to create through endless pursuit of an ideal. It is love, and passion, and the impetus to pursue that which we truly want most out of life through work.
On the other hand, a mission is a specific destination that is concrete and achievable. A good mission engages people – it reaches out and grabs them and makes them want to do something in the present moment. It should be tangible, energizing, highly focused and support the vision. To stick with our NASA example, a mission statement might establish a goal of “putting a man on the moon by the end of the 1960s”.
So, once you have stepped back from the insanity, and examined the beliefs and dreams behind your corporate vision, how does the simple vision statement you write help your business grow? Clarity = Power. If you don’t have a vision and a sense of destiny about your company, you won’t grow. Timing, recognizing unique opportunities, and the power to execute – these lie within you, not in the situation.
Your vision represents your desires, your passions, your dreams that burn hot in your mind… and thus your vision gives you all the intuitive information you need to find direction and make breakthroughs in performance. Your vision is your own internal ‘magnetic north’ that will enable you to make quantum leaps in your results.
Don’t wait! Define and live your vision today and you’ll begin to see power of purpose in action.
Most businesses that continually beat their head against a wall suffer from a profound lack of vision. Everyone engages in frenzied efforts to succeed (always working longer and trying harder), but because people don’t see the big picture or understand the true value they bring to customers, their quarterly profit and loss statements don’t reflect the intensity of their effort.
Here’s the reality… trying harder isn’t usually the solution to achieving more. In fact, it might be a big part of the problem. Let’s examine together the path to clarity of vision.
First and foremost, what is this Holy Grail we call vision? It’s pretty simple really, and boils down to a few primary considerations: Why are you in business? What is so great about what you do or make? What impact do you want your business to leave on the world?
Now you might be able to pop out some pat answers to those questions without really thinking about them, but vision is a critical component of your professional success and deserves more attention. In order to create truly visionary responses to those basic questions, you have to get outside of your comfort zone and slow down. Before you even begin to draft a vision statement, I suggest that you back off of your to-do list, quit trying harder, and pull some wise people around you to help bring an outside perspective into the conversation. Think beyond goals and money and tasks.
It’s very important when stepping into the role of the visionary to suspend disbelief and allow yourself to brainstorm outside the bounds of common sense. Vision isn’t mission! Let me repeat… Your vision isn’t an expanded version of your mission statement. Your mission statement should rightly be grounded in the present and directly related to the values and standards that will help you take action in the upcoming months and years, but your vision must be so much more.
Your vision is your enduring purpose; the fundamental reason for an organization’s existence beyond just making money. It is a perpetual guiding star on the horizon and does not change over time. For example, NASA’s vision is “advancing man’s capability to explore the heavens.” In essence, our vision is a mental picture of the future we wish to create through endless pursuit of an ideal. It is love, and passion, and the impetus to pursue that which we truly want most out of life through work.
On the other hand, a mission is a specific destination that is concrete and achievable. A good mission engages people – it reaches out and grabs them and makes them want to do something in the present moment. It should be tangible, energizing, highly focused and support the vision. To stick with our NASA example, a mission statement might establish a goal of “putting a man on the moon by the end of the 1960s”.
So, once you have stepped back from the insanity, and examined the beliefs and dreams behind your corporate vision, how does the simple vision statement you write help your business grow? Clarity = Power. If you don’t have a vision and a sense of destiny about your company, you won’t grow. Timing, recognizing unique opportunities, and the power to execute – these lie within you, not in the situation.
Your vision represents your desires, your passions, your dreams that burn hot in your mind… and thus your vision gives you all the intuitive information you need to find direction and make breakthroughs in performance. Your vision is your own internal ‘magnetic north’ that will enable you to make quantum leaps in your results.
Don’t wait! Define and live your vision today and you’ll begin to see power of purpose in action.
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