Some Business Year End Tax Planning

There are a number of end of year tax strategies businesses can use to reduce their tax burden for 2013. Here's the lowdown on some of the best options.

Purchase New Business Equipment

Section 179 Expensing. Business should take advantage of Section 179 expensing this year for a couple of reasons. First, is that in 2013 businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $500,000 for the first $2,000,000 of property placed in service by December 31, 2013. In 2014, the $2,000,000 cap is reduced to $200,000 and the $500,000 deduction limit is reduced to $25,000.

Also in 2013, businesses can take advantage of an accelerated first year bonus depreciation of 50% of the purchase price of new equipment and software placed in service by December 31, 2013 that exceeds the threshold amount of $2,000,000. This bonus depreciation is phased out in 2014.

Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.

Note: Many states have not matched these amounts and, therefore, state tax may not allow for the maximum federal deduction. In this case, two sets of depreciation records will be needed to track the federal and state tax impact.

Other Year-End Moves To Take Advantage Of

Partnership or S-Corporation Basis. Partners or S corporation shareholders in entities that have a loss for 2013 can deduct that loss only up to their basis in the entity. However, they can take steps to increase their basis to allow a larger deduction. Basis in the entity can be increased by lending the entity money or making a capital contribution by the end of the entity's tax year.

Caution: Remember that by increasing basis, you're putting more of your funds at risk. Consider whether the loss signals further troubles ahead.

Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2013. Call us today if you need help setting up a retirement plan.

 

Barry Eisenberg, SCORE Counselor, email: barrye003@aol.com

Visit us at: www.scoresouthflorida.net

 

Time to expand?

 

How will you know when it is time to expand your business? Try asking these questions:

 

Do we have more customers than we can reasonably accommodate?

Do we have all the inventory space we need?

Do we have enough work space for our employees?

Do we have enough production space to satisfy our customers?

Can we get and keep the employees we need in the current location?

 

If the answers to the above questions are NO, it is time to consider expansion.

As you think this through, determine if any of these conditions are temporary or long term. Determine if your competition is “on the move", and develop your strategy moving forward.

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

 

Business Power is Risky

Understanding the risks associated with the provision of power by our power companies is an important consideration in business planning. Here in Florida our power sources are at risk from storms and other forms of disasters, both natural and otherwise.

There is no "national power grid" in the United States. The U.S. electric grid is a complex network of independently owned and operated power plants and transmission lines. The continental United States is divided into three main power grid systems:

The Eastern Interconnected,

The Western Interconnected,
The Texas Interconnected

The Eastern and Western Interconnects have limited interconnections to each other, and the Texas Interconnect is only linked to the others via direct current lines. Both the Western and Texas Interconnects are linked with Mexico, and the Eastern and Western Interconnects are strongly interconnected with Canada. All electric utilities in the mainland United States are connected to at least one other utility via these power grids

As an example of the complexities The State of Florida has the following electric companies:

Florida Power & Light, Florida Municipal Power Agency, Florida Public Utility Company Palm Beach, Gainesville Regional Utilities, Gulf Power, a part of the Southern Company, JEA, Kissimmee Utility Authority, Lakeland Electric, Lake Worth Utilities, LCEC, Ocala Electric, Orlando Utilities Commission, Duke Energy, City of Tallahassee utilities, TECO

So when you plan your power backup systems, consider your own generators, secondary power companies, and even secondary power grids. The larger your organization and the more critical your power needs are, you should be moving up this curve of power sources for your business.

What is your power plan?

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

Competitive Strategies

A business can be a “me too” business. That is, it offers the same products, in essentially the same market for essentially the same price. This is a losing proposition. Let me provide an example.

An entrepreneur saw an opportunity and opened an ice cream shop in a tourist shopping area. He determined that no one offered similar products in the area. He rented space and funded significant leasehold improvements. His business did well the first season.

When the second season came around, he found another ice cream shop opened three shops from his in yet another rented space. Now the market opportunity was being shared.

In the next, now third season, yet another ice cream shop opened across the street.

By the end of this season two of the three shops closed, one having been evicted by the owner of the space he rented, due to lack of rent payments. He was he last one in, but could not make enough to support the business. He saw success and felt he wanted in. But in the end he saturated the market. The only survivor was the shop that had the support of a national brand.

No one attempted to discourage the second or third shop from opening. After all they were committed to pay the rents.

In the forth and fifth seasons, the two shops remained vacant and other shops in the complex were running out their leases and preparing to move elsewhere. So the landlord lost it all, because he did not manage his business. The tenants could not trust the landlord and the word spread this was not a good location for any business.

So how do you succeed in an environment such as this?

First and foremost, is you do not set up shop in a complex that will not help and support your business. You examine the history of the location and perform due diligence, before investing your time, effort and resources.

Then you seek and maintain competitive advantages, keeping in mind that changing strategies is also a competitive advantage. But I am getting ahead of myself.

Let’s examine the major strategies of competitive advantage:

Cost Leadership Strategies offer products/services at the lowest price. But can a small business survive this way? Some may make it for a while.

Differentiation Strategies provide a variety of offerings that others may not be able to provide. Keeping this up for the long term is important.

Innovation Strategies jump ahead of others in the market with new and/or better offerings. Some of these may disrupt the existing market.  A risk here is that you have to continue innovating so someone else does not get ahead of you.

Operating Leadership Strategies focuses on efficiencies making the firm easier to do business with, with improved flexibilities.

Now let me return to the point I raised earlier. Altering strategies is a method to keep you ahead of the competition.  You may initially attract customers with one strategy, if the competition increases, you can change your approach to keep them looking in the rear view mirror. Be careful to keep the customers you already have developed as well.

How is your strategy working for you today?

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

Secure Your Information

Information has never been easier to obtain or access. The Internet, Social Media, Cloud Computing, online analytics, and many more technologies we use have opened doors heretofore closed.

The SEC recently ruled that companies seeking private investments are allowed to advertise and they can use social media to announce key information. These decisions can be double-edged swords.  While reducing the costs associated with obtaining funding, it also provides the risk of putting to much information into the hands of everyone. On line security is not infallible as we have seen through many examples in the press. A great deal of time could be diverted to fixing security issues with your information, and it may be too-little-too-late. You cannot unring a bell.

You also have no control over social media’s security. The best you can do is use complex passwords and control physical access of employees who use these accounts.

So how do you balance getting work done and protecting your information? A well planned and implemented strategy is needed.

While not insuring safety, using information collected and balancing compliance with laws, rules, regulations, agreements, etc., with internal policies is a critical element for a viable business.

Effective compliance can be assisted by using a systemic understanding of the issues, seeking methods that can help with multiple needs, and applying automation where possible, to reduce costs.

In business, as with much of life, it often becomes necessary to share critical information with others. But we should not assume that everyone treats this information with the same sense of privacy as you do. So be sure to tell each person what you expect and the potential threats if the information is misused, and practice good governance processes to provide an added level of security.

The answers here cannot be left to technologies or laws. It is up to you to protect your information. In fact, while it may be extreme, it was recently reported that the Russian Government placed a large order for “old” typewriters as on line security for some information is was deemed insufficient.

Reminder: SCORE Counselors have signed confidentiality agreements to protect your information.

How are you handling this?

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

Onshoring impact

Onshoring is a term used to describe the movement of offshore manufacturing back to the good old USA. Apple Inc. recently said it would move manufacturing of some of its MACs from China to the US, and small companies everywhere are making similar decisions.

 This is happening because the wages in China are moving up making it less attractive than it once was. The cost of transportation is also increasing as world fuel prices go up.

Some say manufacturing in the US is more attractive than it has been over the last 20 years.

Now, what will this mean for your business? Will you be able to reduce costs by purchasing products made in America? If you are an offshore manufacturer, maybe it is time to reassess. Maybe shipment times will go down allowing you to reduce inventories.

What do you think?

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

Tales from the Real World...meeting the foreign market

For many years a mfg of hand tools tried to increase overseas sales. The product should have attracted business everywhere. To Meet the Market they changed specs to metrics and translated all written mat'l. from the English. Due to high production costs, they went overseas to maintain competitive pricing. All sales & mktg. was conducted in foreign languages. Sales training was handled at the U.S. plant as well as in the field to gain brand recognition.

Regional sales meetings in locations overseas in major distribution areas were held. Markets were segmented within countries for max. penetration. This resulted in reaching out to customers in their own peculiar ethnic practices. Customers now could relate completely to the product line. Pricing was variable depending on competitive lines and "what the market would bear".

Mfg. over there resulted in a shorter shipping chain, closer to market with less expensive freight. The key step in this blueprint is NOT trying to deal with foreign sales on our platform, instead "doing it THEIR way".

Modification & Rules of the Road

1 ALL pkgs. to be multi-lingual to the territory. In the western hemisphere - Eng., Span. & Fr. On ALL boxes, cartons, etc
2 ALL owner instructions to be in FR, Span, Germ. Eng AND whatever territory goods are destined for: Ex; Far East -
Japanese, Chinese, etc. Middle East - Arabic, etc. Obviously the ideal is to have ALL languages.
3 ALL packing & packaging restructured for max. density & lightest weight. Density for surface (ocean) shipment and
lightness for Air Frt. Shipping chgs, for surface are calculated by cubic feet; Air by gross weight.
4 ALL risk insurance. From the shipping point to the customer's warehouse. Full coverage agains all perils.
5 ALL communications conducted in English. Do NOT correspond in any foreign language as nuance of meaning can
destroy a business
6 ALL sales quoted in USD. Never sell in foreign currency as it puts you in danger of exchange rate differences.
7 ALL disputes to be settled ONLY in U.S. courts. NEVER litigate overseas - you will lose!
8 ALL customer requests for credit sales other then CIA (Cash in Advance) or L/C (Letter of Credit) to be undertaken ONLY
after due diligence. Credit info avail. through Dun & Bradstreet Int'l.

Hank Samuel, Certified SCORE consultant
Chapter 412 Boca Raton

visit us at www.scoresouthflorida.net

Five Tax Tips if You are Starting a Business

 

   

If you plan to start a new business, or you've just opened your doors, it is important for you to know your federal tax responsibilities. Here are five tips to help you get started.

 

1. Type of Business. Early on, you will need to decide the type of business entity you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.

2. Types of Taxes. The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Employer Identification Number. A business often needs to get a federal EIN for tax purposes. Check with us to find out whether you need this number. If you do, we can help you apply for one.

4. Recordkeeping. Keeping good records helps you when it's time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records also help you monitor your business' progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses. Call us if you need assistance setting up your recordkeeping system.

5. Accounting Method. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year. We can help you figure out which accounting method is best for your business.

If you're a new business owner or are thinking about starting a business, don't hesitate to call us today. We're here to help new business owners like you understand the tax aspects of running a business.

 

Barry Eisenberg, SCORE Counselor, email: barrye003@aol.com

 

Visit us at: www.scoresouthflorida.net