Strategic planning is integral for any business to grow. Matt DiFrancesco goes over different avenues that the business owners can go over to plan before the year ends. He also sheds light on how you can assess your current position and develop strategies for the following year.
Coming up with an effective roadmap and developing result-driven strategies requires a lot of effort and understanding “what works.” Matt has dealt with family businesses with unique situations and has helped them walk through his 5-step process. If you want professional assistance, then schedule a free 20-minute conversation with Matt DiFrancesco from HighLift Financial.
The Fourth Quarter
This is that time of the year where I break my reviews into three or more mini-meetings. I like to review beneficiaries on any accounts that would have qualified beneficiary accounts, life insurance, any insurance products, transfer on death, anything like that.
We look at their roadmap and check if there is anything that we need to do before the end of the year. Of course, the most important part of it is looking at income and tax projections for that year.
“As a business owner, taxes can be one of our largest expenditures.”
The problem is that most business owners that I taught and talked to don’t always review these projections. They don’t take enough time to look up and step back and think about where they stand now? And then what do they need to do in the next few months to help mitigate some of this tax liability.
What Do Business Owners Need to Look At?
When the client realizes that they will have a large tax bill, the first thing that we do is to go through a qualified plan. It can be a 401k, profit sharing, a simple IRA, a SEP IRA, anything like that. If they don’t have one, then we get one in place. After having a qualified plan, we want to see if they maximize their contributions to the plan. We may want to make some adjustments or do some bonusing to give them the ability to put the maximum in.
Many business owners take a lower salary or take distributions from the business to be able to offset other income needs that they may have. So, at the end of the year, I look at what they have done in deferrals? The second step is to ensure that they have a profit-sharing element in place.
Furthermore, I go through the cash balance plan. It’s like a defined benefit Pro or a defined benefit plan, basically a pension plan. So again, it gives us the ability to funnel more money in through this qualified plan to allow them to defer the taxes.
If the business owners have a health savings account, I always suggest maximizing what they’re putting into that. They should do it even if they don’t use it. This is because we can almost use that as their healthcare fund. There are always out-of-pocket costs. So now they have a fund that’s separately designated for healthcare, and again that’s pre-tax money, too.
“We use the fourth quarter to review where they stand and develop strategies for the current year in conjunction with their CPA.”
Another way we can reduce tax liability is equipment purchases for depreciation. I have a client who has got an excavating company. Their basic strategy is that they would dig, dig and dig and dig all year. At the end of the year, they’d be loaded with cash. However, they face problems during winter because of the frozen grounds. So, they spend January, February, and March to bid on jobs, so they’re loaded with this cash at the end of the year,
They would buy equipment to get the depreciation to reduce their tax liability. But, the problem was now with the bidding. They needed better bonds as companies wanted to look at the balance sheet. So what we ended up doing with them is we implemented a qualified 401k profit sharing. It was structured in a way that we could maximize what the owners were putting in.
We studied their buy-sell agreements. The danger with equipment purchases for depreciation is that it is not always the most prudent strategy when you have other strategies that can be much more effective. They can allow you to have money in your pocket instead of just taking depreciation.
During the fourth quarter, you must schedule a time to go through last year’s tax return and look at the current year’s projections. See if there are any ways to reduce your current year’s tax liability and plan for next year’s. It would help if you sat down with a qualified CPA. I would also recommend a financial professional that understands these strategies and also understands your current situation.
Get in Touch With Matt
If any of this resonates, or you want to investigate this a little further, feel free to go to my website and schedule a free 20-minute conversation. I would be happy to look at your situation and point you in the right direction.
Furthermore, if you want more insights regarding why family businesses need to plan, then here is what you need to read. Of course, you can always explore my website to know more about my services and the key team players in HighLift Financial that can keep your business on your “vision” track.
Disclaimer
The information compiled and posted here solely represents the opinions and views of the guest. It might not necessarily be similar to the opinions and views of High Lift Financial. The availability of this content only serves educational and informational purposes. It is in no way a substitute for tax or legal advice or professional investment.
Always make sure to consult your financial advisor with any queries related to personal or business planning. DiFrancesco Financial Concierge, LLC. d/b/a HighLift Financial is a Registered Investment Advisor registered with the State of Pennsylvania and subject to the State of Pennsylvania’s regulatory oversight.