Rising Receivables Call for a Year End Review

Rising business receivables can be a sign of a growing, prosperous company – or of troubles ahead. How can you know if your receivables are right-sized for your business?

Start by breaking down the numbers. A report of your receivables listed by age will give you the information you need. Track the percentage of invoices paid late and compare the information to that of past years. Benchmark your statistics with those of your industry peers and look at the amount of unapplied or unreconciled customer payments.

Do you notice an issue with too many receivables? A receivables problem can be symptomatic of a defective accounting system. Are customer payments posted to the proper accounts accurately and timely? A delay in updating your records will make receivables collection less efficient. Are late notices sent to customers quickly and regularly? Is staff following up on outstanding bills? Perhaps your collections team needs training to beef up skills.

Your sales procedures can also cause problems. For example, extending credit to a borderline customer is a temptation that can result in painful losses. Create a consistent credit application process for your business. Make sure credit limits conform to company policies and that they are strictly enforced. Check bank and vendor references where appropriate.

What can you do before year end to address past due customer invoices? Here are three tips.

1. Double down on your collection efforts. Take advantage of the fact that your customers are likely flush with cash from seasonal sales.

2. Pay collection-related costs before year end. This ordinary business expense can give you an additional tax deduction this year.

3. If your business is on the accrual basis, consider writing off old invoices that you deem uncollectible. Bad debt expense can lower your taxable income.

Contact us for help in strengthening your receivables process and weeding out your problem accounts.

For more information, call us at (219) 769-3616 with your questions, or email them to gward@swartz-retson.com.

Last Minute Tax Savers for Individuals

Even though the end of the year is fast approaching, you still have time to trim your 2016 federal income tax bill. Here are suggestions.

State and local income taxes. If you prepay certain state and local taxes, you can claim the deduction on your 2016 return. Caution: Analyze your exposure to the alternative minimum tax before accelerating these deductions.

Charitable donations. When you itemize, you can generally deduct the full amount of charitable donations you make by December 31, 2016, including those you put on your credit card and pay in 2017.

Capital gains. Consider selling appreciated investments if the gain on the sale will be absorbed by prior losses or if you will benefit from the preferential long-term capital gain tax rate available when you own assets for more than a year.

Capital losses. By “harvesting” capital losses from depreciated securities at year-end, you can offset other capital gains plus up to $3,000 of ordinary income.

Required minimum distributions. Verify that you have withdrawn the right amount from your qualified plans and IRAs to avoid a 50% tax penalty.

Dependency exemptions. Review how much support you provided to dependents in 2016. Generally, you can claim a dependency exemption for a qualifying relative if you provide more than half of the financial support for the year.

Medical expenses. When you itemize, you can claim deductions for unreimbursed medical expenses that exceed 10% of your adjusted gross income. Move elective medical and dental procedures, such as routine exams, into 2016 if those expenses will help you clear the 10% threshold.

Indiana Taxpayers.  Review Indiana’s Section 529 college savings plan for tax credits up to $1,000 per year.

Estimated taxes. Avoid an underpayment penalty by paying at least 90% of your 2016 tax liability or 100% of last year’s liability (110% if your adjusted gross income exceeded $150,000).

Please call us to discuss planning ideas for your specific tax situation.

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

 

OASDI Wage Base for 2017

As the end of the year approaches, it’s time to turn our attention to planning for 2017.  This includes ensuring that proper payroll tax rates and wage bases are updated in payroll systems as of January 1.  For 2017, the Old Age, Survivors and Disability Insurance (OASDI) taxable wage base increases to $127,200, an increase from the base of $118,500 in 2016.  The OASDI tax rate for both employees and the employer match remains at 6.2%. 

 

The Medicare portion of the FICA tax continues to have no limit or cap on its taxable wage base.  The base Medicare rate for both employees and the employer match remains at 1.45% of wages.  Employees earning more than $200,000, however, must pay an additional 0.9%.  This additional tax is withheld and remitted by their employer, but not matched by the employer.  

For guidance with your payroll tax planning, contact our office.  Call us at (219) 769-3616 with your questions, or email them to dvanprooyen@swartz-retson.com.