End of Year Business Spending
As the end of the calendar year approaches, many business owners are considering how they can save money on taxes by timing their income and expenses. This basically means moving income into a year of lower taxes and moving expenses into a year of higher taxes. However, this sounds a lot more simple than it actually is. One business’s year-end tax strategy won’t look the same as the next’s. There are many factors to consider. That’s why it’s best to work with a tax professional. You will need to look at the big picture and see if it makes sense to maximize your tax savings this year or possibly move some of those expenses to the next year. Every situation is unique. An advisor who understands you, your business, and your goals will ultimately guide you to make the correct and most effective decision as the year comes to an end.
Paying for expenses ahead of time can certainly have its benefits. If there are supplies, equipment, or other expenditures that you can reasonably foresee your business needing in the coming year, it may make sense to purchase those before the end of the year to maximize your tax benefit and get those savings now.
Another form of paying ahead of time could include paying bonuses to your valued employees, which creates both a tax deduction for you and is a benefit for your employees. Employee/owner bonuses are a legitimate business expense and can be deducted under certain circumstances. For example, S Corporations can deduct bonuses for shareholders and owners, as long as they own their shares at the time the bonus is paid. C Corporations can only deduct bonuses for shareholders/owners who have a 50% or higher ownership at the time the bonus is paid. (The Balance Small Business, Paying Bonuses to Employees – Tax Effects, Jean Murray, 2019.)
This is an example of how intricate formulating a year-end tax strategy can be—there is a lot of knowledge required, especially since the 2017 Tax Cuts and Jobs Act, which was the biggest tax reform since 1986. Since this was in effect in 2018, there aren’t too many differences this year. However, inflation is something that can affect taxpayers from year to year. For example, the maximum amount that an employee can contribute to their 401(k) plan has changed. The amount in 2019 has increased to $19,000 from $18,500 in 2018.
The amounts you set aside from your business for yourself and employees are deductible as a business expense, this is why businesses can save on taxes by setting up a 401(k) plan for employees such as a Simple IRA or a Sake harbor 401(k). Business owners with no employees may benefit from an SEP, Owner K, or Owner Defined Benefit Contribution Plan. If you set up the plan before the end of this tax year, your potential savings could more than pay for the cost of setting up the plan and funding it. The appropriate business retirement plan can incorporate the flexibility you need while helping you to save for your retirement—as well as attract and retain quality employees.
If you can do something that not only saves you money on taxes but helps with employee retention, why wouldn’t you? Recruiting, hiring, and training new employees regularly is an expensive endeavor. If you are a business owner, a top goal of yours should be to create a work environment that allows your employees to thrive. It’s also good to incorporate a little fun into the work week. Mix up mundane tasks with some staff outings or friendly office competition, even if it means dedicating some of your year-end dollars to do so.
Someone who understands how to make the workplace a welcoming and enjoyable environment is Andy Hawkins, founder and president of Concentric Corporation.
“We’re a family here at Concentric,” Andy told us. “Since we take a personal approach in the recruiting we do, we figure we better live that out in all aspects of our business—especially the team aspect! We definitely have fun in our office, and we enjoy organizing events for staff and our clients. These events bring us closer together and make our relationships stronger. Ultimately, they benefit the company as a whole because employees stay longer and are more motivated to work hard in order to represent the business the best they can. It’s hard to put a price tag on what it takes to cultivate an amazing team culture.”
If you’re looking for a place with talented and highly-motivated individuals who have a true understanding of what both companies and candidates are looking for, turn to Concentric Corporation.
Something that a lot of small businesses and even some larger companies don’t think they necessarily “need” is a better advertising strategy. You can do awesome work and provide the best services on the market, but if no one knows who you are, what’s the point? That is why marketing your name and your brand in an effective way is so important. We spoke with Shana Boyd with Eleven Twenty-Three to learn more.
“Advertising is an area that many businesses and organizations tend to overlook,” Shana addressed. “There are a lot of companies that need to be more creative and efficient with their advertising dollars. We know this can be a hard process to dive into, but that is why our agency is here to help.”
Eleven Twenty-Three is a strategic creative and media planning company in Omaha. Their team is personable and practical, and they like to take it back to the basics. So if you’re simply overwhelmed by all the details that go into producing and placing your advertising, leaving you with inconsistencies in your brand representation, let them help.
“There are many ways to use your end-of-year budget that will in turn make you more money by taking your business to new levels and creating a stronger brand awareness,” said Shana. “Ask yourself if it’s time to update your website content and design. It’s recommended that organizations update their website every 2–3 years to keep up with the latest technology and trends, which ultimately affects search engine optimization (SEO).”
If you’re hesitant to put your money towards advertising, it might be because you think an entire rebrand is necessary or it’s not even worth it because your limited budget won’t get you much. Neither of these things is the case. As Shana says, “Advertising is actually really simple; it just seems daunting because the world we live in is not simple.”
The awesome team at Eleven Twenty-Three will help you generate new ideas for your advertising, working alongside you to grow your business without making things too complicated or expensive.
Of course, the best thing you can do for your brand is actually getting your face out there by attending networking events, joining a referral group, and being an active member of the community. This is why we recommend investing some of those EOY dollars on a Center Sphere membership for your business.
So many businesses have seen firsthand how Center Sphere’s referral process works. Members meet weekly in chapters made up of representatives from each business industry, in addition to having access to countless networking events and professional development trainings that members can attend as part of their membership benefits. Reasons to join Center Sphere include gaining confidence, expanding your marketing opportunities, building professional and personal relationships, and positive business exposure.
As we wrap up this topic, don’t lose sight of the importance of smart spending. A good EOY tax-strategy isn’t to spend everything possible to reduce profits. The obvious benefits of paying ahead of time for products/services for the upcoming year is discounted prices, as well as current deductions to taxable income. Also, paying now may also alleviate the temptation to spend your currently-available funds on more “fun” but likely unneeded items. If you have no use for the items, then you’re just wasting money. Ask yourself whether your spending is really moving your business forward. If so, it can be a good strategy for reducing your tax bill.
Business owners need to be smart and creative with any extra income they have available to spend at the end of the year. Work with a professional to get a more complete picture of what your taxable income will look like so that you can see exactly what benefits and tax savings you will receive from paying for certain expenses now. As always, make sure you are reaching out and supporting other local businesses in Omaha as you work to grow your own!