Monday, December 22, 2014

6 Dumb Things That Business Owners Do at Year-End

With Christmas trees trimmed and Chanukah menorahs fully lit, the last thing that most of us want to talk about right now is year-end planning and tax mitigation. But you’ve got to, or else experts say you and your clients could have a heck of a fiscal hangover in the weeks and months ahead.

Josh Patrick, CFP®, a wealth manager who specializes in working with owners of privately held businesses, checked in with us recently about some of the really dumb things he sees business owners do at year-end. “If you’re spending money unwisely, you’re taking at least 60 cents out of every dollar you spend and just flushing it down the toilet, said Patrick, head of Burlington, Vermont-based Stage 2 Planning Partners.
Here are 6 of the biggest mistakes Patrick sees his clients make again and again at this otherwise festive time of year. Make sure you and your clients don’t fall into these common year-end traps.

1. Buying capital equipment you don’t need. Just because you’re having a good year doesn’t mean you should go out and buy equipment to get a tax write-off. Before buying capital equipment, do an analysis to see if there is a payoff for the expense.
2. Pay bonuses because you had a good year. Patrick warns about the “pennies from heaven” bonus. Employees don’t know why they’ve received the bonus. They surely will appreciate it, but if you haven’t told employees why they received the extra money it can turn into an annual sense of entitlement—not an incentive to work hard every year.

3. Rushing to acquire a business before year-end. There is nothing magical about December 31. “If you’re really not ready to close the transaction, don’t do it,” advised Patrick a frequent contributor to the New York Times “You’re the Boss column” and our client CEG’s Elite Advisor Report newsletter. “Rushing into any transaction, let alone buying a business, is always a bad idea. It’s really hard to do an acquisition that’s accretive under the best of circumstances. The only way to make a business purchase that actually works is to follow a purchase process very carefully that you’ve designed before you start.”
4. Rush because it’s year-end. Don’t rush to finish up a project just because the end of the year is coming, advised Patrick. “I made that mistake when I launched our new website. For some reason I decided that I had to rush to get our site up and running before the end of the year. One of the things I missed was making sure that all of the pages from our old site were linked to the proper pages on our new site. Our old site was never mapped to our new site. Because we didn’t map our site properly, Google penalized our site for almost a year. This happened just because I rushed a project for no really good reason.”

5. Increase your inventory.
If you or your client is a cash-based taxpayer, you can deduct inventory as you buy it. The problem with loading up on inventory is that you then have to sell it. If you have too much inventory, you can be sure that some of it is going to go bad. Don’t fall prey to end-of-the-year deals. They’re always just so your suppliers can make their numbers. Before loading up on inventory, make sure it’s returnable. Otherwise Patrick said you’ll be in the market for a full-size dumpster.

6. A tax write-off still means you’re spending money. The days of tax credits for buying stuff are long gone. Don’t buy stuff just because you have money burning a hole in your pocket. Your clients shouldn’t either. “A tax write-off is only part of the money you spend. It really does come out of your pocket,” admonished Patrick.
Be smart and think about your year-end purchases just like you would for one in April. If you need it and

Wishing you and your families a safe, happy and fiscally festive Holiday.

Best, HB and team

Our blog has more, as does the FREE Resources page of our website.


TAGS: Josh Patrick, Stage2 Planning, dumb things year end tax planning

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