Karla Dennis, EA, MST & CEO of The Award Winning Tax Accounting Firm Karla Dennis and Associates Inc. — Specializing In Tax Planning
The U.S. economy has been artificially inflated due to the fiscal and monetary stimulus measures the government put in place for individuals and business owners affected by the Covid-19 pandemic. Because of this, I believe the country is going to be feeling the effects of the recession even more in the upcoming election term and beyond after the current economic stimulus measures disappear. Many individuals and business owners have been enjoying the spoils of these programs, but will be feeling the sting of the recession in the upcoming year as the positive effects of the stimulus dissipate. So what can individuals and business owners do now to best prepare?
If you are an employed individual, you may be receiving extra money in your paycheck due to the payroll tax holiday that went into effect September 1 and continues through the end of the year. Although it may be tempting to use these extra funds to spend more on leisure activities, note that the payroll tax holiday is a deferral of taxes owed, not forgiveness.
With that in mind, now is the time to save and be strategic in the way your paycheck money is spent. It is not the time to increase expenses — instead be frugal in all areas to help you sustain the downturn. Here are some areas of your finances to consider to help you stay on top of things:
• What are your monthly costs for living? Know your monthly fixed expense costs, such as your car payment and mortgage or rent.
• Know your monthly variable expenses, such as groceries, gas, medications, etc.
• What can you expect to owe in taxes? How can you lower your tax bill?
• How can you cut expenses so you are only spending on what is important?
• What subscriptions should you cancel, and which ones should you keep?
• What are your financial goals?
• What big expenses are you saving to purchase in the future?
As for business owners, it’s time to hope for the best and prepare for the worst. Businesses will most likely have to make serious budget cuts to weather the economic crisis. When thinking about how to best prepare for the coming months, it’s important to focus on business efficiencies. To get started, answer the following questions for your business:
• Do your financial statements show that you are being efficient in profit and loss?
• Have you been looking at your gross profit margins? How are those trending?
• What do your key performance indicators (KPIs) tell you about the gross market trends?
• Is your business profitable? Is your business growth profit rising or falling? Is your net profit where it needs to be?
• Is there anything you should not be spending on? How can you cut unnecessary expenses?
• More importantly, what should you be spending money on? What are some smart investments you can benefit from?
Now more than ever, you should look at your business budget and create a strategy to earn more, while the economy is still stimulated. As a business owner, one smart investment to consider making is increasing your sales and marketing spend. Research has shown that businesses that increase marketing budgets during a recession actually garner more of the marketplace when the economy comes back. Online marketing advertisements are only increasing in costs as years go by, so if you aren’t already using them to boost your sales and marketing, now is the most cost-effective time to start.
Get Your Financial House In Order
The sting of the recession is coming as interest rates and income taxes will be increasing in the near future. Just remember, if your record keeping and financial planning is in order, you will be prepared for any economic downturn as a business owner and/or an individual. Now is the best time to save, create a tax strategy and prepare your monthly budgets through the end of the year. Consider having a professional accountant or financial advisor provide guidance to ensure you are taking the right steps to get your financial house in order.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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