Do it now. Adjust your 1999 withholding tax payments so that by the end of the year, they will equal your expected 1999 income tax. This is the safest and best way to make sure that you will pay the required amount of taxes during 1999 to avoid IRS underpayment penalties.
Regardless of the nature of the business, most troubled companies can trace their problems to one or more of six common management mistakes.
- Failure to review and revise sales forecasts.
When a company has a recent history of consistent yearly sales improvement, it is often assumed that uninterrupted growth will continue. But when overly optimistic sales projections aren=t met operating results suffer.
The solutions. Look at orders from major accounts. If they’re down, find out why. Compare the previous year’s projections to actual results and ask what should be done to avoid similar mistakes in current forecasts. In addition to comparing dollar sales to previous years, compare unit sales and the quality of orders received as well.
- Inattention to financial reports.
When business drops off, owners tend to direct their attention to sales and marketing. This often involves increased traveling, with more visits to sales representatives and customers in an attempt to bring in more business. As a result, key financial reports are put on the back burner and left there to simmer. Profit projections and cash flow forecasts aren=t reviewed as diligently as they should be. Slowly but surely, the company begins to slide into financial trouble.
The solution. Designate key people to review all financial reports and to bring warning signals to management as soon as they appear.
- Weak purchasing controls.
If too many employees are authorized to make purchases and business softens, a company can be faced with increased costs and reduced margins.
The solution. Purchasing systems and controls should be fine-tuned when business is good. Regular vendor reviews and price checks should be a routine part of the purchasing function. Buying authority should be delegated to as few people as possible. Regularly purchased, low-ticket items should be reviewed by purchasing personnel for possible automatic periodic shipments at lower prices.
- Failure to modify product lines.
Too often, companies continue to offer certain products so they can claim a Acomplete@ product line, even though sales are negligible and margins unacceptable for those products. The result is higher hidden costs which can severely damage the total profit picture.
The solution. Schedule quarterly line reviews. Make tough decisions about what the company sells. Analyze the real cost of carrying slow-moving items. Don=t hesitate to weed out unprofitable products.
- Doing business as usual.
Be flexible and be prepared to move quickly. For example, just because it’s always been your policy to consider increasing prices once a year doesn’t=t mean that=s the best policy for today=s business conditions.
The solution. Keep an eye on costs. If they are increasing beyond expectations, take a hard look at market conditions and consider raising prices if sales will not be materially damaged.
- Failure to motivate good managers to stay with the company.
When the business climate worsens and key employees find it more and more difficult to produce good results, they frequently exert extra pressure on other employees. Raises and bonuses are cut back, or even eliminated, as the company=s performance weakens. Faced with such conditions, the best employees will invariably begin to look around for better opportunities.
The solution. Even when it appears that the company can’t afford it, it may be desirable to offer performance incentives and even increased compensation. A short-term alternative that can boost morale is to give key personnel greater recognition and more responsibilities.
When you sell your principal residence, you can exclude from income up to $250,000 of gain and $500,000 on a joint return. Ownership and use tests must be met. But if you’ve been taking a home-office deduction because you used part of your home for business, the IRS will consider part of the house sale as a sale of business property. That means you’ll have to pay taxes on the portion of the gain which is allocated to the part of the house you used for business.
You can avoid this problem if no part of your house qualifies for a home-office deduction during the year the sale is made. If you make sure that it’s obvious that your home office space is used for non-business purposes, it won’t qualify for the home-office deduction. The sale will not be treated as a partial sale of business property and 100% of the sales proceeds will qualify for deferral of taxes on the gain.
Rhode Island Motion Picture Production Tax Credit. The State of Rhode Island provides a transferable tax credit that can be used to reduce personal income taxes. The credit is generated from certified costs associated with Rhode Island made feature-length film, video, video games, television series, or commercials. The RI Division of Taxation issues the tax credit certificates. Benefit to Rhode Islanders: Each of these motion picture production tax credit certificates may be transferred, assigned or sold.
THE BENEFIT TO YOU: The credits can be used dollar for dollar to reduce your RI income tax. For example, say your Rhode Island income tax is $1,000 you can use these credits to reduce the tax to $0. There is no limit to the amount of credits you can purchase. Contact your accountant or a broker of tax certificates to obtain the credits. Rhode Islanders get your credits
Offset capital gains with capital losses. Should you have capital gains, review your portfolio to see if there are any stocks that you could sell at a loss. If you recognize the loss in the same year you have capital gains, you can use them to offset the gains. If you don’t and you sell the stocks at a loss in a year you do not have capital gains you will be limited to deducting only $3,000 of the losses. Any excess may be carried forward to subsequent years.