Healthy Businesses Require Healthy Cash Flows
by: Terry Andre
Think of cash flow as the blood of your company. Just as the human body needs blood to flow freely through its arteries, a business must have a healthy cash flow to survive and thrive. To keep your business off life support and boost its cash flow:
Boost your deductions. If your company operates on the cash method of accounting, pay as many expenses as possible before year end, and then allow your payables to build back up to normal early next year. If you use the accrual method of accounting, establish liabilities by year end by obtaining bills and accruing expenses that will be paid early in the coming year. Year end bonuses can be deferred for 2½ months and still be deductible.
Make equipment purchases this year. The Economic Stimulus Act of 2008 has nearly doubled the limit on Section 179 expensing to $250,000 for equipment, furniture and other depreciable business assets placed in service by Dec. 31, 2008 (or your tax year that begins in 2008). You’ll need to act quickly, though, because the limit decreases to $125,000 for tax years that start in 2009. Under the Stimulus act, you also may be eligible for 50% bonus depreciation on certain assets purchased and placed in service this year.
Determine when to pay estimated taxes. Pay your company’s estimated taxes based on actual income for each period if this yields a better result. For example, if your business is seasonal, you may not need to pay estimated taxes in equal quarterly installments. If your net income is rising, you can still pay an amount based on the prior year’s tax bill as long as you are prepared to pay the difference when your tax return is due.
Give to the company’s retirement plan. Whether you match employee contributions or make profit-sharing contributions, the resulting tax deduction will cost money to fund. But you can defer paying the contribution until the due date of the business tax return, including extensions.