Summer is a great time for planning

Summer often brings a welcome slowdown for many small company owners as customers take vacations and the pace of business slows. So, it’s a great time to take a close look at your company’s finances and assess where you’re headed during the second half of the year.

Many small business advisers recommend that owners sit down with their accountants during June or July to determine what changes they need to make to their financial projections and overall business plans. Taxes, cash flow, capital spending and employee benefits are among the many topics that should be discussed.

One of the first items you need to consider is your estimated tax payments, and whether your remaining payments for 2006 need to be adjusted upward or downward.

“You don’t want to pay in more than you have to,” because the money you overpay can be put to better use within your company, said Gordon Spoor, a certified public accountant in St. Petersburg, Fla. On the other hand, if you’re underpaying, you’re running the risk of having to pay a penalty to the IRS next year.

You can find out more information about estimated tax payments in IRS Publication 505, Tax Withholding and Estimated Tax. You can download a copy from the agency’s Web site, You should also check with your state tax authorities to determine how much estimated tax you should be paying them.

If you don’t know what your taxes are likely to be for the rest of the year but you’re fortunate enough to have a strong cash flow, consider stashing some of the money away in case you do need it for taxes later in the year or early in 2007.

“You can have it set aside and invested in a safe investment like a money market account,” Spoor said, noting that with interest rates higher now, your company will earn more money.

Now is also the time to be looking at your capital spending plans for the rest of the year – cautiously, accountants say.

“In this dicey market, I’d be telling them not to make any risky moves like in real estate,” Spoor said.

Jeffrey Berdahl said equipment purchases should also be thought through carefully. While what’s known as the Section 179 deduction gives small businesses a great tax break when they buy equipment such as computers, office furniture and machinery used in manufacturing, the cost of financing such a purchase may offset the benefits of the deduction.

“Is it worth the tax savings?” Berdahl asked.

The Section 179 deduction allows small businesses to deduct upfront rather than depreciate $108,000 worth of equipment bought and put into service during 2006. You can find more information about the deduction in IRS Publication 946, How to Depreciate Property.

Taxes aren’t the only issue at midyear – employee benefits deserve consideration as well. Jeffrey Berdahl, a certified public accountant with Berdahl &Co. in Center Valley, Pa., advises owners to “look at a retirement plan. See if there’s a better plan out there” than the one you have now.

Small business owners who want to set up a retirement plan need to be aware that the popular plan known as a SIMPLE, or Savings Incentive Match Plans for Employees, must under law be set up by Oct. 1. You can, however, set up plans such as defined benefit plans, profit-sharing plans and many 401(k)s by Dec. 31, and the least complex plan, the SEP, or Simplified Employee Pension, can be set up anytime before you file your 2006 return next year.

IRS Publication 560, Retirement Plans for Small Business, contains information about the various plans. Your accountant and a benefits expert can help you determine which is the best for your company.

Similarly, Spoor and Berdahl recommended owners look at their health insurance plans and see if there are ways to save; both men noted that health savings accounts are likely to help many small companies lower their fast-rising health care costs.

The Health Savings Accounts combine a high-deductible insurance policy with a savings account that employees can draw on to pay their out-of-pocket medical expenses. Employees can contribute to the account with pretax dollars.

Spoor said he’s seeing a growing interest in HSAs among his clients. But they might not necessarily work for all small businesses – as with a retirement plan, you should consider meeting with a benefits expert to decide what kind of health insurance your company should provide.

Joyce Rosenberg writes about small business for the Associated Press.

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