For richer, for poorer, for better, for worse. If you own a small business, these familiar wedding vows might signify more than promises to a spouse. They might describe your relationship with your business as well. And with good reason if your personal financial well-being is closely tied to how well your business is doing.
A strong cash flow is good for business and good for you. If your company’s cash flow isn’t as healthy as you’d like it to be, here are some things to consider.
Rely on Reports
What you don’t know can hurt you, especially when it comes to cash flow. If you’re not already checking them, start generating cash flow and cash balance reports on a monthly basis. If your figures are off for even a few months, find out why. A problem could be lurking.
Market, Market, Market
When things are slow, developing new business opportunities is critical to your cash flow — and perhaps, your company’s survival. But it’s also critical when things are good. You can’t afford to be complacent about the future. If you stop devoting time to growing your business, your success may be short-lived.
Look at Limits
In a cash crunch, many small business owners instinctively dip into their personal accounts to help their businesses over the hump. While this may be simpler and faster than some other solutions, it could turn disastrous for an owner’s personal finances if the business is seriously failing. If you haven’t already decided how much of your personal assets you’re willing to invest in your business, now may be a good time to come up with a limit.
Create a Credit Line
Even if you’re doing everything right, you could still hit a rough patch. Or, an opportunity might come up that requires some quick financial maneuvering. Instead of using your own money, consider using a line of credit. For maximum flexibility, establish a line of credit for your business before you need it. If you wait to apply until you’re in a bind or a hurry, you might be turned down.
If your personal and business finances are intertwined, your planning should integrate the two.
Tax deductions aren’t the only things to consider when looking for ways to reduce your 2018 tax bill. There are a number of tax credits that you may be able to claim. A tax credit reduces your tax liability dollar for dollar (and, in some instances, may be fully or partially “refundable” to the extent of any excess credit).
Parents of children under age 17 may claim a child tax credit of up to $2,000 per qualified child. The child tax credit is phased out for higher income taxpayers. A different credit of up to $13,810 is available for the payment of qualified adoption expenses, such as adoption fees, attorney fees, and court costs. The credit is phased out at certain income levels, and there are certain restrictions as to the tax year in which the credit is available. Look into claiming the child and dependent care credit if you pay for the care of a child under age 13 while you work. It’s available for 20% (or more) of up to $3,000 of qualifying expenses ($6,000 for two or more dependents). This credit isn’t confined to child care expenses — it may also be applicable for the care of a disabled spouse or another adult dependent.
Higher Education Credits
The American Opportunity credit can be as much as $2,500 annually (per student) for the payment of tuition and related expenses for the first four years of college. A different credit — known as the Lifetime Learning credit — is available for undergraduate or graduate tuition and for job training courses (maximum credit of $2,000 per tax return). You’re not allowed to claim both credits for the same student’s expenses, and both credits are subject to income-based phaseouts and other requirements.
One credit that taxpayers sometimes miss is the credit for excess Social Security tax withheld. If you work for two or more employers and your combined wages total more than the Social Security taxable wage base ($128,400 in 2018), too much Social Security tax will be withheld from your pay. You can claim the excess as a credit against your income tax. The alternative minimum tax (AMT) credit is another credit that’s easy to overlook. If you paid the AMT last year, you may be able to take a credit for at least some of the AMT you paid. The credit is available only for AMT paid with respect to certain “deferral preference” items, such as the adjustment required when incentive stock options are exercised.
Your tax advisor can provide more details regarding these and other tax credits that may be available to you.