18 Year End Financial Must Dos
There are financial moves you need to make before year-end if you want them to impact your 2011 financial statements and taxes. Some can even affect your ability to raise money, secure vendor credit, or sell your business in 2012, 2013 and beyond. With 2012 fast approaching, the time to act is now.
Must Dos that Make a Bad Year Look Better
1. Make a last ditch effort to collect from delinquent accounts, even if you have to negotiate on the amount. If you can’t, you’ll probably want to write them off as bad debt. Not doing so will hurt your accounts receivable turnover ratio—a red flag for lenders and investors.
2. Encourage other customers to pay before year-end, too. But before you offer an early payment discount, be sure it won’t take too big a bite out of your overall gross profit margin—another financing red flag if it declines from prior years or is below industry standards.
3. Ask for progress payments on projects already underway and see if you can secure deposits for any that will begin this year.
4. Delay paying bills that can wait until 2012.
5. Offer year-end specials on slow moving inventory. This will improve your inventory turnover ratio—something that will please your banker.
6. Sell any underperforming property and equipment that is fully depreciated.
Must Dos that Make a Good Year Even Better
7. Wait to deposit any new checks until after the first of the year.
8. Purchase property or equipment that qualifies for Section 179 or 100 percent bonus depreciation, as these benefits are likely to be scaled down in 2012. Note that qualifying equipment has to be in service before year-end.
9. Make charitable contributions.
10. Pay employee bonuses.
Must Dos To Do in Years Good or Bad
11. Download copies of all your year-end bank and credit card account statements. Don’t forget those PayPal, investment, and Google Checkout accounts. You’ll need proof of 12/31 balances and they’re sometimes hard to come by after the fact.
12. Try to pay down any bank lines of credit, preferably to zero. Lenders like to see that you’re using them as intended—for temporary or seasonal needs. Maintaining a balance year-round suggests that they’re being used for long term financing.
13. Take a close look at your inventory. You can reduce your taxable income and improve your inventory turnover ratio by writing off any obsolete items.
14. Carefully consider whether the IRS or other government agency might look at anyone you treat as a contractor and decide they’re actually employees. Desperate for revenue, governments are hot on the trail of such misclassifications. If you think you may have misclassified workers in prior years, you might be pleased to know the IRS recently announced a program that can reduce the penalties for admitted transgressions, but you need to have at least filed 1099’s for those contractors in each of the last three years. A word of caution if you plan to fess up—the IRS isn’t the only agency that can make your life miserable if you’ve misclassified workers. Be sure to get advice from a competent attorney or accountant before you proceed.
15. If you incurred costs to start a business in 2011, but haven’t yet made a sale, hurry up and sell something! Anything! You can’t deduct any of those expenses in 2011 unless you do.
16. If you’re planning to squirrel money away in a 401k, keep in mind that while it can be funded in 2012, the account has to be in place by December 31, 2011.
17. If your personal income will be relatively low this year, consider converting your traditional IRA to a Roth IRA. Fidelity has a handy calculator to help you figure out if this is a good move.
18. Take a look at your investments and decide if it’s time to cash out. The special treatment of Capital Gains at a maximum tax rate of 15 percent is set to disappear at the end of 2012. After that, they’ll likely be taxed at ordinary income rates. If your capital losses exceed your gains, you can carry them forward to offset future capital gains.
Finally, most experts agree that tax rates will increase after 2012 and tax breaks will be harder to find. Be sure to consult a qualified professional about whether these and other strategies are right for you. A good place to start is with those who contributed their tips for this article: Brian Price—founding partner of Dallas-based PriceKubecka, Rick Dlugasch—CPA with Boston-based Waldron Rand, Robert Mahoney—president of Belmont MA-based Belmont Savings Bank, and New Jersey-based Gail Rosen, CPA.