Do Not “Go to Sleep” This Winter

“I wonder if the snow loves the trees and fields, that it kisses them so gently? And then it covers them up snug, you know, with a white quilt; and perhaps it says “Go to sleep, darlings, till the summer comes again. – Lewis Carroll

With winter fast approaching, I find myself inclined to be less productive. It’s harder to get out of a warm bed when the rest of the room is so cruel and uninviting (melodrama intended). The sun setting earlier makes 7PM feels like 11PM, so going out at 7:30 seems an outrageous and unfathomable burden. In short, I become a big baby and want to curl up under blankets and do nothing. (That’s not what I end up doing. I kick myself in the hindquarters and get up to take care of business. But doing nothing is what I find myself wanting to do.)

I think that’s somewhat natural for everyone (especially if you hate the cold). I also find that it applies doubly to small business owners, at least as to how they deal with business matters. The end of the year is approaching, people are thinking about vacations and holidays, many industries go into a lull, and it just seems natural to “go to sleep” until January.

DON’T DO IT!

In reality, this is the one of the most important times of year for business planning. Things to consider include:

  1. Setting up an LLC or incorporating
  2. Converting an existing entity to an S-Corporation
  3. Investing in new items or spending money if you are having a high income year
  4. Getting health insurance if you do not already have it

Some of these are short and simple. Some are a little more involved.

Setting Up a Corporate Entity

Corporations and LLCs can be set up at any point during the year; and for legal and tax purposes there can be very real benefits to doing so. While you can incorporate throughout the year, if you are going to be taxed as a partnership or a corporation it is easier and less confusing if it starts January 1st. Since it takes some time to get wheels in motion, starting that process now is an excellent idea.

Converting to an S-Corporation

I reference this a fair bit in my blogs and in speaking to clients. Essentially, if your profits are set to increase and you are currently being taxed as a sole proprietor or partnership converting to an S-Corp could save you a significant amount of money. More information can be found at this link.

Investing in New Equipment or Increasing Business Spending

If you are having a high income year or expect next year to be a bad one, it may be a good time to accelerate some spending or invest in new equipment. If you’ve been debating buying a new truck, buying a new printer, spending money on advertising to increase revenues next year, etc. – it might make sense to spend that money now instead of next year. The tax savings could effectively discount the price of those expenditures.

Getting Health Insurance

This one technically can be done after year end, but it’s a good idea to start thinking about it now. Open Enrollment for Obamacare is November 15, 2014 to February 15, 2015. I’m afraid this one is going to sneak up on some people because the penalty just became effective in 2014 (and no one will actually be hit with a penalty until they file their taxes in 2015). What makes getting insurance coverage now even more important is that in 2015 the stakes are raised. The penalty in 2014 was $95 per adult and $47.50 per child (up to $285 for a family) or 1% of your taxable income, whichever is greater. In 2015 this is increased to a whopping 2% of your income or $325 per adult/$162.50 per child, whichever is greater. And in 2016 it gets even worse increasing to $695 per person/$347.50 per child per year or 2.5% of your income, whichever is greater.

The liability you take on by not having health insurance in the first place coupled with these new costs can make a pretty compelling case for getting coverage, if you haven’t done so already. (And depending upon your income, there are possibly some credits given by the government that can partially offset the cost of the insurance.)

Conclusion

There’s no one size fits all solution to any of these issues. But make sure not to curl up for winter and forego the requisite planning. Taking some time to do so now could save you significantly in the future.

As always, if you have any questions about how these matters apply to your personal or business situation I am more than happy to assist.

Any accounting, business, or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.