Between now and the end of the year, businesses should take various actions to help their bottom line for 2010 and to get ready for 2011. Here are some actions to consider:
Schedule your annual meeting
If you have a corporation (C or S), hold your annual meeting of the board of directors before December 31 (even if only you and a spouse constitute the board). Failure to hold the meeting, which is required by state law, can enable creditors to "pierce the corporate veil" and hold you personally liable for corporate debts. Below are some items to put on your meeting's agenda. Enter any items that have been approved into your corporate minutes.
- Year-end bonuses. Decide whether and how much the corporation can afford this year.
- Declare a dividend. If the corporation has earnings and profits, now is a great time to pay them out as dividends. While dividends are not deductible by the corporation, individuals who receive them will pay income tax at no more than 15 percent this year. (Tax rates on dividends could rise substantially next year).
- Authorize retirement and other employee benefit plans. If the company wants to provide health coverage, a 401(k) plan, or other plan in 2011, put this in the corporate minutes (and add costs to the budget explained below).
- Authorize borrowing. If the corporation wants to borrow money, even from owners, this action must be approved by the board.
Even if you're not incorporated, it's still a good idea to meet with owners and financial advisers to discuss similar actions for your company.
Do year-end tax planning
Determine whether you expect 2010 to be a profitable or losing year. Your conclusion will dictate tax moves to make before the end of the year to optimize your tax position. For example, if you expect to be profitable in 2010, you may want to adopt a qualified retirement plan and make certain equipment purchases before the end of the year to maximize write-offs that reduce your taxable income.
Year-end tax planning is complicated this year due to the fact that tax rules for 2011 are uncertain. The Small Business Jobs Act of 2010, which is currently pending, would make some changes in 2010 tax rules. There may be additional clarification forthcoming about tax rules after 2010, so stay in touch with your tax adviser to learn which strategies are best for your company's situation in light of any tax changes.
Budget for 2011
Now is the time to gather information you'll need to complete your budget for next year. Get data on:
- Salaries. Are you planning on increasing wages to staff? The average increase in 2011 is expected to be 2.9 percent, according to Mercer's 2010/2011 U.S. Compensation Planning Survey. Social Security and Medicare (FICA) tax rates remain unchanged; the wage base for the Social Security portion ($106,800 in 2010) is expected to be the same in 2011.
- Health care costs. Your premiums likely will rise (perhaps significantly). Larger employers expect increases of 8.9 percent; small employers and individuals can expect even greater increases. Ask your agent or the insurance company for costs.
- IT costs. Are you planning to upgrade to Windows 7, add new software or buy new hardware? Factor this cost into your budget.
- Travel costs. If you and/or your staff travel for business, note that airfares and hotel rates worldwide are expected to increase in 2011. For example, hotel costs will probably increase, according to American Express' North America Business Travel Monitor (BTM).
Also make projections for increases (or decreases) in other anticipated expenses for 2011, such as utilities, workers' compensation and other budget items.
Schedule an appointment with your accountant or other financial adviser to review your company's financial picture and to discuss actions to be taken now.
Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® at www.barbaraweltman.com and host of Build Your Business radio. Follow her on Twitter @BarbaraWeltman.