April 2009 Archives

April 25, 2009

Cut Costs But Avoid Layoffs

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For some businesses, laying off employees is the only realistic way to cut expenses low enough. But there are lots of ways to reduce the amount of money flowing out of your business. If you get creative, you might be able to hang on to your employees long enough to outlast the downturn. Here are some ideas:

  • Negotiate lower prices. In an economic downturn, you'll be surprised at how many suppliers will lower their prices to keep your business, if you just ask.
  • Ask creditors to write off a portion of what you owe. If a creditor knows your business is struggling to keep its doors open, it may be willing to accept 50 to 70 cents on the dollar for your accounts payable.
  • Renegotiate your lease. If your lease will be up for renewal soon, chances are good that, if pushed, your landlord will give you a better deal.
  • Sublet unneeded space. List your vacancy online and canvass your area for a subtenant -- maybe a small business that can't afford space of its own any longer.
  • Stop paying for equipment you don't need. If you are leasing equipment you don't need, ask the leasing company to renegotiate payments or cancel the lease in exchange for taking back the equipment. If you own equipment outright, or are still paying on it, sell everything you don't need.
  • Eliminate discretionary spending. If you planned to paint your building or buy new equipment, don't, even if you've made a contractual commitment to spend money -- you can negotiate your way out of most contracts, sometimes for a small fee.
  • Cut employee benefits. When times are tough, it's better to cut benefits such as dental plans, health club memberships, and wellness plans before laying off people. But try to hang on to your employees' health insurance plan (if you offer one).
  • Cut salaries by a small percentage. When jobs are scarce, it's usually possible to cut pay (including your own) by a small percentage and not lose employees.
  • Cut the work week. Another way to save jobs is to go to a four-day work week (you'll save 20% of your payroll), or at least put a freeze on overtime hours.

See Riva Richmond's article in Business Week for some heartening examples of how these cost-cutting measures have been put to work.

To learn more about helping your business survive the challenges of recession, see Save Your Small Business, by Ralph Warner and Bethany Laurence (Nolo).

April 16, 2009

Deadline for Net Operating Loss Carryback Looms

For most businesses, April 17 is the last day to elect to carry back a business operating loss from the tax year 2008. (As we reported back in February in the post Business Loss Carrybacks Extended by Stimulus Package, under the stimulus package, a loss can now be carried back five years instead of two, to be applied against prior year profits.) The April 17 deadline doesn't apply to businesses that file extensions or use a fiscal tax year rather than the calendar year.

April 12, 2009

Watch Those Expense Deductions

While you're considering how aggressive to be when claiming business expenses this year, watch out for what can trip you up in an audit -- see these 25 Tax Traps, by John Tozzi at Business Week (you can probably skip the first few slides).

April 10, 2009

What Should You Pay Toward Estimated Taxes This Year?

Most people base their estimated tax payments on their previous year's net income, but your income this year might be lower than last year's. Knowing this, the IRS will allow you to be conservative with your estimated payments this year. Previous IRS rules required business owners to pay estimated taxes based on 100-110% of their prior year's income, but fortunately, the stimulus package lowered that percentage to 90%. As long as you end up making estimated payments equal to either 90% of your 2008 income or 90% of your actual 2009 income (calculated each quarter), you won't be assessed a penalty. If you do underpay your estimated tax liability, there will be a small penalty, but if skimping a bit on estimated tax payments allows you to pay other more critical bills, it may be worth it. Estimated taxes for the first quarter of 2009 are due April 15. For more information on estimated taxes in general, see Nolo's article Paying Estimated Taxes.

April 3, 2009

Red Flags for Small Business Tax Audits

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The IRS estimates that businesses underpay their taxes by about $90 billion per year, which is why they spend a lot of time auditing small businesses, especially those whose owners file Schedule Cs. If you still haven't filed your tax return, be careful about puffing up business expenses, especially travel and entertainment expenses. The IRS knows how tempting it is to claim business deductions for personal meals and personal use of items like cars, cell phones, laptops, and other cool gadgets. For more red flags to avoid when claiming deductions, here's a good rundown on the New Entrepreneur blog.