Lincoln End-of-Year Business Spending in November 2020
A Year of New Challenges and Opportunities
As the end of the year approaches, business owners are looking for the best ways to minimize their companies’ tax liabilities. With the tremendous blows that COVID delivered throughout the year, however, getting 2020 end-of-year business spending right could be more complicated than ever. There are many businesses that have suffered irreparably, others that can recover but have had to make drastic changes, and yet others that have had one of their best years ever. It’s a milieu of extremes, for sure. Add to that the complexities of the unprecedented Paycheck Protection Plan (PPP) and the resulting Small Business Administration (SBA) loans that blur the tax picture with new uncertainties, and businesses have a lot of decisions to make by the end of the year. We talked to a number of tax specialists in the Lincoln area to get some incite about what businesses need to be considering for year-end spending to close out an onerous year in the best financial condition possible.
Adaptation & Change
Cruise & Associates, Inc. (cruise-associates.com) is a regional accounting that has been working with individuals, businesses, and farm clients for 30 years, working with clients year-round to help them reduce their tax burdens and improve their profitability. They provide consultations with business owners so they know precisely where they are financially, and they’ll help businesses create plans that are unique to their particular business and help them determine what they need to do in terms of spending before the end of the year. President Robert Cruise said COVID has had a split effect on businesses in Lincoln and will go down as the year of adaptation and change just to survive.
“In my 30 years of business, I have never seen a year where our clients are either doing extremely well financially or struggling,” Robert said. “There is nothing in between. No matter if your business is having a good or bad year, though, year-end planning is extremely important. If you are having a good year, the planning can help you know what needs to be done to help reduce your tax liability. If your year is not going as well as you hoped, the planning will help you determine some changes that need to be made to help make next year more profitable.”
Some businesses have been forced to take steps such as adding curbside pickup, working from home, or reducing hours, just to continue to operate. As the country slowly gets back to at least some sense of normalcy, Cruise & Associates expects the challenge for businesses to be determining what changes to make permanent and what to eliminate because their customers and workers have become accustomed to the new way. One of the biggest tax challenges facing businesses in 2020 centers around any stimulus packages they received from the government.
“The main question is, ‘Will this money be taxable?’” Robert explained. “The Paycheck Protection Plan provided businesses with loans from the SBA to cover items such as payroll, rent/mortgage, and utilities. In order to receive the loan forgiveness, businesses had to apply to their banks. The unknown piece is if this money is taxable. If the IRS determines that it is, owners will get to deduct the expenses that the money was used for. If it is not taxable, businesses will need to reduce the expenses that the money was used for.”
For example, he said, if a business used $100,000 for payroll, then the payroll expense must be reduced by $100,000. In this situation, no matter what is decided, it will be a wash for the business owner. As for the principal and interest on SBA 7A loans that the SBA paid for six months, the CARES Act says that a business does not have to consider those payments as income, but the IRS is still debating the issue.
“You need to be cautious because of all of the uncertainty,” Robert said, “but this doesn’t mean you should bury your head in the sand. Business owners still need to take steps to try and grow their businesses and should not be afraid of thinking outside the box and trying something new.”
Considering all of the changes that have taken place in the workplace in 2020, one of the investments that businesses are considering is upgrading workplace safety and configuration. They’re looking for solutions to make their offices cleaner, safer, and most conducive to the new socially distanced working style. Others are considering continuing to have many employees working from home, at least until the COVID crisis is completely behind us—and maybe indefinitely. AOI Corporation (aoicorp.com) is primed to help.
People are heavily influenced by their surrounding environment. It affects their productivity, decisions, and wellness. In today’s work environment, factors such as flexibility, collaboration, and innovation are paramount to achieving the most from a work and business space. AOI’s construction, furniture, and prefabricated interiors groups partner with a variety of industries, from quick service restaurants to medical centers, corporate offices, education, energy, telecommunications, retail, media and more, their clients rely on AOI’s proven expertise to leverage value and create great places.
“For many businesses, the pandemic has created an opportunity to consider alternative workplace approaches,” said AOI General Manager Penny Johnston. “It is important to build resilience for the uncertainty ahead. Clients seeking to be more resilient and beginning to think about what’s next are turning to AOI for workplace guidance supporting their people, processes, and places. Before spending your money on furnishings, consider selecting items that are highly flexible and adaptable—easily moved and reconfigured as needed.”
AOI’s approach to constructing and furnishing the built environment is rooted in decades of experience, the latest research, and state-of-the-art tools and equipment. They offer solutions including construction, furniture, and and prefabricated wall systems that can be leveraged in conjunction with one another or used separately to achieve your business goals.
“Our clients trust us because we make their problems disappear,” Penny said. “They value us because we operate as an extension of their business. We offer a non-prescriptive, adaptive, and customized approach that custom-fits an organization, its vision, and goals. By working together, we don’t just solve the problem, we offer the right solution.”
A Wait-and-See Approach
SP Group, P.C. (spgrouppc.com) places a strong emphasis on year-end tax planning for business clients. In the course of the planning process, they help business owners with decisions around end-of-year spending and the potential tax consequences of making significant purchases in the current year or future years. This planning includes reviewing a tax projection with the business owner to discuss tax strategies and to forecast any remaining tax due for the current tax year. Their goal is to be tax-wise and avoid any tax surprises at the time a business tax return is prepared and filed.
“Businesses should make end-of-year decisions in consultation with a trusted and knowledgeable tax advisor,” said Enrolled Agent Troy Stentz. “Large purchases, and even some more modest spending choices, can have substantial tax implications. The end of the year provides a limited but critical opportunity to make moves that are both tax-wise and appropriate for the needs of the business.”
Even though 2020 has been a very difficult year for some businesses, due to the effects of the pandemic on the economy, there may be some unique situations that work in their favor. For example, if business owners temporarily find themselves in a lower personal tax bracket for one year, a window of opportunity exists to realize some tax savings—converting tax-deferred savings into tax-exempt accounts. In addition, business owners who used the Paycheck Protection Program (PPP) this year to borrow funds to help with payroll and other qualified expenses need to work with a professional advisor for planning discussions.
“While the PPP loans may be forgivable, as it stands right now, the Internal Revenue Service has ruled that business expenses paid with the forgiven loan proceeds are not deductible for tax purposes,” Troy said. “This has significant consequences when it comes to a business’s taxable income and should be part of the year-end planning discussion with your tax professional.”
So, what does the SP Group advise with regards to planning ahead for spending in 2021?
“A wait-and-see approach would be advised for businesses that are making plans for spending in 2021,” Troy said. “Of course, the progression and, hopefully, the resolution of the pandemic will likely factor into those decisions, but 2021 could also be a year of change to tax policy, depending upon the results of the election and any tax-related, federal legislation that becomes law for 2021 or beyond. Many businesses will likely choose to wait until the second half of the year to make major spending decisions if they have concerns about the tax implications of those decisions.”
Save Some Money
Bethany Arnold with Edward Jones (www.edwardjones.com) said besides finding ways to spend your end-of-year dollars, your CPA or financial advisor should also be able to help you find ways to SAVE it by taking advantage of the gifts that the government has to offer business owners.
“There are multiple avenues available for business owners to save those end-of-year dollars,” she said. “Business owners with no employees may benefit from a SEP IRA, Owner K, or Owner Defined Benefit Contribution Plan, while business owners with employees may benefit from a Simple IRA, a Safe Harbor 401(k), or a custom option that includes age-weighted, tiered, and other specialized profit-sharing plans, defined benefits plans, and combinations of these plans, including 401(k).”
Think of it as paying ahead of time for your retirement, Bethany said. “As a business owner, you know that your company’s success takes preparation and effort. Your retirement years are no different. The appropriate business retirement plan can incorporate the flexibility you need while helping you to save for your retirement—as well as attract and retain quality employees.”
Bethany encouraged us to look at it this way: In addition to your role as a business owner, you are also an investor.
“It just makes good sense to diversify your assets and retirement income so you don’t put your entire retirement nest egg in your business. Saving outside the business means you control your own retirement, rather than depending on the sale of the business to fund your retirement needs. There is no crystal ball that can tell you what your business might be worth when you are to retire. In one scenario, it could be worth only the equipment, building, and inventory, which may not be enough to support your lifestyle in retirement. In fact, often when a business is sold, the owner must finance part of the sale.”
Hire a Professional
Whatever the path for your end-of-year business spending, there’s one think for certain: You truly need to hire a professional to walk you through it. To emphasize how important it is to work with a trusted CPA and/or financial advisor, we spoke to Aaron Newell with AR Solutions (www.arsolutionsinc.com). AR Solutions is a licensed, bonded, and insured Nebraska Collection Agency with more than 30 combined years in medical collections.
“Do what you do best and pay for the rest!” Aaron said. “Spend your time and efforts in whatever your specialty is and employ a specialist to do the things that you aren’t an expert in. Time is more valuable than money because once it is gone, you never get it back!”
Cleaning up your past-due receivables is an important end-of-year task, too. AR Solutions has been serving clients as a trusted partner in handling past-due receivables for more than 15 years. They offer competitive fees that are contingent upon collection. You can trust that your accounts will be handled with the highest-quality services so you can focus your time and energy on what it is that YOU do best—running your business.
As with most other things in life, the key to achieving your long-term financial objectives is planning. Willeke Financial Group, LLC (www.willekefinancialgroup.com) is another local outlet available to help you do just that. They have trained professionals who can help you identify your financial needs and then determine which insurance and financial products can best help you meet your objectives. These things won’t happen by accident, so it’s important to determine what you want to achieve financially and then map out a strategy that will help you meet those goals.
Like pretty much everything else, COVID has led to hordes of changes for small business in Lincoln and beyond. Planning your end-of-year spending, however, remains a crucial part of your business success, and we encourage you to contact the professionals featured here to walk you through the process and help you grow your business long-term, despite the storm!