• Funding
  • Investing
  • Lending
  • Insurance
  • Banking
  • Wealth
  • Fintech
  • Venture
  • Crypto
Subscribe
No Result
View All Result
  • Equity Funding
  • Stocks
  • Mutual Funds
  • Credit Cards
  • Loans
  • Insurances
  • Savings
  • Crypto Trading
Home News Feed Advisory

Op-ed: Here are some action steps for small businesses that survived the Covid pandemic

CNBC NewsbyCNBC News
November 2, 2020

andresr | E+ | Getty Images

Covid-19 has disrupted tax and retirement planning for small-business owners, especially those who focused on saving their businesses from the pandemic’s fallout earlier this year. With some hard work, however, there is still time to get back on track by Dec. 31.

Here’s a great example. After his business tanked this spring, one of my clients didn’t take a paycheck for six weeks. To preserve cash, he also lowered the amount of his federal and state withholding tax and stopped contributions to his company retirement plan. Fortunately, in the past few months, his business has largely rebounded. And to his own surprise, revenue for 2020 will be higher than what he projected at the beginning of the year.

Now that he’s flush with cash, he needs to make several pro-active adjustments, starting with his tax withholdings and retirement plan contributions. And because his profit sharing contribution is tied to his compensation, we are also adjusting his wages, making his pay retroactive to pre-pandemic levels so he can achieve the maximum benefit.

More from FA Playbook:
Proposed law would offer Americans a retirement recovery plan
You don’t have to be rich to need a financial advisor
Tips from financial advisors for getting your Medicare coverage right

Many small-business owners across the country are facing the same scenario. If you took similar steps this spring, there are some action steps to take between now and year-end.

First, increase your compensation, tax withholding and retirement plan contributions. Much like my client, start by restoring your wages and tax withholdings to their pre-pandemic levels. And work to evaluate your retirement plan savings.

If your business has recovered, there is still time to contribute before year-end. For 2020, the maximum contribution for 401(k) plan salary deferrals is $19,500, or $26,000 for those age 50 and over.

In my client’s case, he needs to contribute an extra $3,250 by year-end to make up for the months he stopped his deferrals. We simply took his remaining six pay periods and divided into $3,250 to get him caught up.

For those making additional employer contributions, review the amounts you’ve contributed to your safe harbor, profit sharing and cash balance contributions on a year-to-date basis versus your original 2020 funding strategy. While qualified employer contributions are not due until 2021, I recommend acting now to avoid falling further behind. If not, you may be in a cash-flow pinch in early 2021 when both taxes and retirement plan contributions are due.

It’s also time to get back in the stock market. By holding onto much of their cash this spring and summer, many small-business owners stopped investing any of their “after-tax” earnings, fearing every dollar would be needed to keep their businesses running. Unfortunately, the equity markets quickly rebounded in late spring and went on a tear — and these investors missed out on substantial gains.

Now is the time to re-evaluate your liquidity needs. Start by setting aside a reasonable amount of cash, or considering opening a home equity line of credit. These moves will provide you with a safety net without jeopardizing the long-term benefit of compound earnings from future investments.

Once you are comfortable with the amount, I recommend resuming after-tax savings using a dollar cost averaging strategy. This will work down the excess cash by making periodic purchases over time and reducing the impact of day-to-day market volatility.

Make some smart charitable donations. Despite the hardships of running a business, many owners sought to donate money to non-profit organizations in their communities to help the less fortunate weather the Covid-19 storm. One way to accomplish this goal is to gift appreciated stock. Instead of selling the stock and recognizing capital gains, a security can be donated for a deduction of fair market value, gains included.

For example, one of my clients wanted to support a local community organization that was providing rent and utility assistance to those in need. He had an oversized position in a well-performing stock that he wanted to reduce. So, instead of giving cash to the nonprofit, he donated the stock and was able to reduce his exposure while saving on capital gains.

This strategy achieved several goals – the client supported a local nonprofit during a time of crisis, saved on saved future capital gains and was able to take the cash he would have otherwise gifted and reinvest to diversify his portfolio by purchasing a new security in its place.

While we continue to wait for a Covid-19 vaccine, millions of small-business owners know this winter will present some challenges. By keeping daily tabs on revenues and cash flow, they can continue to run their businesses while funding their tax obligations and retirement plans. Now is the time to get those plans in place.

Source Link

Related Topics

Stocks making the biggest moves midday: Poshmark, JPMorgan, Wells Fargo, Zoom, Spotify & more

Bitcoin

Donald Trump Banned From Twitter in Final Days of Presidency

Prev Next

You May Like

Stocks making the biggest moves midday: Poshmark, JPMorgan, Wells Fargo, Zoom, Spotify & more

Bitcoin

Donald Trump Banned From Twitter in Final Days of Presidency

Investing

Fintech start-up SoFi to go public via SPAC backed by Chamath Palihapitiya

Personal Finance

Mega Millions jackpot is now $490 million while Powerball is $470 million

Financial News

Personal Finance

7 money moves to make now to start the new year strong

CNBC News
by CNBC News
Bitcoin

BlackRock CEO Larry Fink Says Bitcoin Can Evolve Into Global Asset and Impact Dollar

Blockchain News
by Blockchain News
Bitcoin

How Bitcoin’s 2020 Record Price Run Past $18,000 Is Different From Its All-Time High in 2017

Blockchain News
by Blockchain News
Personal Finance

Still have money in your flex spending account? Here’s how you can spend it down

CNBC News
by CNBC News
Investing

Op-ed: At some point, sky-high valuations will matter just like they did for the dot-com busts

CNBC News
by CNBC News
Personal Finance

$20,000 in credit card debt and a negative bank account: The cost of one woman’s wait for unemployment benefits during Covid-19

CNBC News
by CNBC News
Stock Market

Dow futures fall 300 points as election night fails to yield clear winner

CNBC News
by CNBC News
Advisory

Here’s how you can size up climate change to tap into smart investment opportunities

CNBC News
by CNBC News
Load More

© 2020, FinanceLane

Home | Contact | Terms and Conditions | Disclaimer | Privacy Policy

  • Home
  • News Feed
    • Equity Funding
    • Debt Funding
    • Crowdfunding
    • Real Estate Funding
  • Investing
    • Stocks
    • Bonds
    • Mutual Funds
    • Private Equity
    • Merging & Acquisition
    • Real Estate
  • Lending
    • Personal Loan
    • Business Loan
    • Credit Card
    • Microfinance
    • Peer-to-Peer Lending
  • Insurance
    • Life Insurance
    • Auto Insurance
    • Education Insurance
    • Health Insurance
  • Banking
    • Business Banking
    • Payments Bank
    • Investment Banking
    • Individual Banking
  • Wealth
    • Earning
    • Savings
    • Investments
    • Budgetting
    • Credit Management
    • Tax Planning
    • Retirement
  • Fintech
    • Alternative Financing
    • Payments
    • Asset Management
    • Digital Banks
    • Softwares
  • Venture
    • Startup Ecosystem
    • Merging & Acquisition
    • Equity Investing
    • Franchising
    • Business Offers
  • Fintech
    • Alternative Financing
    • Asset Management
    • Digital Banks
    • Softwares
    • Payments
  • Crypto
    • Crypto Investing
    • Crypto Trading
    • Crypto Coins
    • Bitcoin
    • Blockchain
    • DAPP
  • Subscribe
  • Contact
  • Login

© 2020 FinanceLane - Terms and Conditions | Disclaimer | Privacy Policy

Welcome Back!

Login to your account below

Forgotten Password?

Create New Account!

Fill the forms bellow to register

*By registering into our website, you agree to the Terms & Conditions and Privacy Policy.
All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Add New Playlist

← Facebook Bans Bitcoin Content—A Push for Libra? ← Reserve Bank of Australia Will Explore Wholesale CBDC with ConsenSys Ethereum POC
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.