This time of year can be incredibly stressful between year-end closing and navigating the holiday season... so I’m going to make sure this email gets straight to the point!
If you don’t read anything else in this newsletter, read this! We have two big bank holidays that fall on a Monday coming up: December 25th, 2023, and January 1, 2024. Make sure that you have a plan in place to adjust for payroll or any other important payments due on these dates.
IRS Released Inflation Adjustments
For 2024 - the IRS has released their annual inflation adjustments. Every year these amounts vary based on that is happening in the economy - but notable adjustments include:
Standard Deduction for Married Filing Joint rises to $29,200, Filing Single to $14,600, and Head of Household to $21,900.
The Estate Tax exclusion rose from $12,920,000 to $13,610,000
The monthly-limit for parking as a fringe benefit rose from $300 to $315 (don’t blow it all on avocado toast and lattes)
The annual gift exclusion rose to $18,000 from $17,000 (this is the amount you can gift a single individual in a year and not have it count toward your Estate Tax exclusion)
The Foreign Earned Income exclusion rose to $126,500 from $120,000
Business Gift Limits
‘Tis the season of giving - and the season of remembering the deductible limit for business gifts to an individual (you sending gifts to clients, colleagues, etc). This is set at $25 per person (so you could give a gift of $50 to someone and their spouse).
“Wow” you say - “That seems low!”. Well, it was established in 1962 (60 years ago), and hasn’t been changed since. Adjusted for inflation, the gift deduction would be worth $232.25.
So just be mindful if you did gift over that amount, that anything over the $25 is not deductible and needs to be backed out of your tax deductions for your business.
Rising Interest Rates Handcuff Business Owners
With interest rates near 8%, coupled with rising costs of doing business, more and more business owners are going to feel a cash-squeeze over the foreseeable future.
Because of high interest rates, the cost of expansion and taking loans is much more expensive, and interest payments now become a material line item on a profit and loss statement.
There is also talk of another interest rate raise coming in December.
So what are proactive steps business owners can take now in order to maximize cash?
Slash fixed costs as much as possible. These are costs that you incur no matter what, so you need to get them as low as possible so they aren’t eating up extra cash.
Receive payments timely. Don’t let AR simmer for months, collect money on services performed as quickly as possible, otherwise that cash you would have collected becomes an interest-free loan to your client. I recently came across a business owner allowing customers 90-180 days to pay, while taking out 30% APR loans to cover costs incurred on the engagement. Don’t do that.
Get serious about cash-flow tracking. Have a true understanding of the revenues coming in and expenses going out, and run projected cash-flows consistently several months out.
Build a cash reserve so if you do have tight months, you won’t have to dip into expensive financing options to cover the deficit.
Pivot quickly when needed. If a worker, vendor, new tech, etc isn’t working out, don’t be afraid to pivot and head in a new direction if keeping that cost is going to put your company in a vulnerable financial position.
My rule of thumb is - the tighter cash is, the more you need to look at it. That means at a minimum every week you need to sit down and see what’s happening with it, so any changes can be made in real-time which will protect your business from further loss.
Comments