Cash Management for Agencies: Strategies and Examples

Cash Management for Agencies: Strategies and Examples

Have you ever run into a situation where you almost couldn’t pay your employees because cash was so tight?

 How about failing to make office rent in time and having to pay extravagant late fees?

 As an agency owner, cash flow is the life-blood of your business.

 That’s why managing your cash flow is such an integral step in finding success.

 In this article, I’ll let you in on a few secrets to managing cash flow and examples of how these cash management solutions have helped agencies interpret their situations and make the best business decisions.

 But first, what is cash management and what is the importance of a successful cash management strategy?

 Keep reading to find out.


What is Cash Management?

 Cash management (or, cash flow management), is the way a business manages cash coming into and out of it, as well as how it manages the money left over for re-investment opportunities.

 It also involves the management of liabilities the business takes on so they can reinvest into the business and control their liquidity.

 Simply put, cash flow management is the life-blood of the business; how well it’s done affects how long a business can survive.


Market Liquidity

Market liquidity refers to a business’ ability to cover its debts.

 If you look at a business’ assets, they sometimes aren’t all able to be liquidated, AKA turned into cash quickly.

 The higher a business’ liquidity, the better their ability to quickly convert assets to cash.



Based on the above definitions, you may now be wondering how managing your cash flow may affect your investments.

 Well, the better a business is at managing their cash flow, the more they are able to thoughtfully reinvest in the business.

 If you have no idea of how your cash will look over the next 12 months, it becomes significantly harder to make decisions on whether to re-invest in staff or equipment for your agency or business.

 Having a cash management strategy helps you to make decisions based on what it would look like financially were you to support a new sales initiative, launch a new marketing project, or invest in something like office equipment.


Cash Management Strategies and Examples

 As a financial studio, we’ve worked with countless agencies on cash flow management and have developed several strategies to help these companies plan for future investments and save when incoming cash may be scarce.

 Here are a few strategies we’ve used and a few real-world examples of these strategies in action.


Strategy 1: Project Milestones for Cash Flow Prediction

As you may be aware, agencies typically bill for their work either on a monthly basis, or by project.

 We’ve worked with several agencies who do project-based work as opposed to having monthly retainers. And while both payment structures have their pros and cons, with monthly retainer based payment cycles, cash flow is slightly easier to predict (assuming clients pay on time…#agencylife).

 But, when you deal primarily in projects (web dev and creative agencies, I’m talking to you), it can be tougher to anticipate when the business will be flush with cash or gearing up to hit lean times.

 In these cases, setting project milestones is crucial.

 For instance, let’s say you’re planning to work on a project for 6 months.

 How are you handling collections?

 Knowing that makes managing your cash flow easier because you know what money is coming in and when.

 When you start a project as an agency, it is a best practice to take at least 50% of the project fee up front. Then, when you hit a milestone in the project, you can take steps to make sure the next payment comes in exchange for your deliverables.

 Having a tight collections process is essential to making sure you’re paid on time. And having automation in place to make sure people are being followed up with if they don’t pay after 30 days is very helpful as well.

 You can set up a simple email automation sequence to notify your clients after a certain period of time where an invoice is unpaid using your email, invoicing, or CRM software.

 Sometimes people just forget and need a little reminder; other times, it’s likely they actually can’t pay you.

 Either way, it’s your business on the line.

 That’s where strong client vetting and negotiating air tight contracts is key.

 Ultimately, the collections process can be a headache if you’re constantly having to chase after clients.

 That’s why it’s important to be selective about who you work with and to make sure they actually have the ability to pay you for your work.


Strategy 2: Cash Flow Forecasting

Oftentimes, we set up 24 month models for our clients to see what their month-to-month cash flow looks like. These models are designed to look forward so you aren't left being held back. 

 Doing this can help forecast what different scenarios would look like, such as if you want to attend a conference and bring 10 people, calculate travel expenses or determine if you can do some hiring.

 Understanding cash flow is really important when you want to figure out when cash payments should go out, how benefits work, or what additional assets need to be purchased.

 Our 24 month cash flow models typically have 3 sections.


24 Month Cash Flow Model Sections

Recurring expenses

This section gives a good idea of what it would cost the agency to operate if there is no new business coming in.

 Sources of Revenue

When creating this section, we work with the owners to understand the best way to forecast month-to-month revenue, as well as monthly recurring and project-based revenue.

 We also will look at closed contracts and the current sales pipeline to understand sales goals and work backward into understanding what the dollar amounts would look like in revenue.

 This helps in predicting when sales will close as well as when the agency would actually receive the money coming in.


Special Purchases

Finally, we take a look at special purchases like marketing and investments into the business itself.

 We also attempt to determine what departments need to be involved in those purchases to keep the business running smoothly.

 Now that you’ve seen some of the strategies you can use to help predict cash flow, let’s dive in to some specific examples of times where having these insights about cash were imperative to making the best business decisions.

Example 1: The Agency Who Didn’t Track Their Cash

There was an agency we worked with who wasn’t tracking any cash.

 Unsurprisingly, they quickly got to a point where they could no longer run their business!

 Now, since cash is the life-blood of any business, especially an agency business, we knew that this agency would be in trouble if we couldn’t help them figure out how to anticipate cash flow.

 The first thing we did was create cash flow forecast models to help them figure out where they should and should not be spending, then added those models into a 24 month plan.

 As I discussed a little earlier, what the 24 month plan allowed us to do was create a plan for the agency to pay back their debts in a way that didn’t put strain on their cash.

Once the business demonstrated their ability to pay back their loans, we advised them to open a line of credit to help inject cash back into the company.

Having the awareness of an established financial plan allowed them to make decisions and set up other ways to pull cash in the case of a downturn in business.


Example 2: The Agency That Outgrew Their Office Space

Another example was in the case of an agency that was growing rapidly and needed more space.

 With the cash flow model we created for them, they were able to see what it would look like to purchase more assets, hire more employees, and finally, get a bigger office space.

 Based on the information presented in their cash flow analysis, they ended up increasing their lease and renting a second floor of the building they were in.

 Had the company not understood their sales goals and cash situation, they would have had a much harder time determining whether or not the expansion was a good idea.


Example 3: The Agency Who Chose to Use Cash Instead of Credit

In this example, we were working with an agency who wanted to develop an app.

 They had previously established a line of credit in order to have different types of debt they could tap into, but the problem was, they weren’t sure if they should use the cash they had on hand, or finance the creation of the app.

 We ended up using a model to show them what it would look like if they chose to use their cash on hand.

 What we found was that if they went this route, there would be a period of time where cash would be extremely low.

 In the end, they decided to finance the project in order to circumvent the potential danger of being out of cash.

 Simply put, if you’re unsure whether to finance a purchase with credit or use the cash you have on hand, a solid cash management strategy can help you avoid running into many problems down the line.


Cash Management For Peace of Mind

 Keeping a watchful eye on your cash position will help you know your worth and understand your financial strength.

 When agencies aren’t properly managing their cash flow, they are often operating in a blind spot where it’s difficult to understand their 3, 6, and even 12 month runways.

 You can ruin your entire business by running out of cash, and the headache of trying not to miss important financial milestones like payroll, rent, taxes, or vendor responsibilities creates a lot of stress for business owners.

 What it really comes down to is that running a successful agency is no simple feat. Don’t subject yourself to undue stress and anxiety by turning a blind eye to your cash situation.

 If you don’t practice cash flow management for any other reason, I say do it for your peace of mind.

 Have questions about how managing cash flow can help you scale your agency more rapidly? Drop me a line.

 I've got more tricks up my sleeve that I can share with you when your ready for growth (and peace of mind)!

Financial Accounting and How It Applies to Your Agency

Financial Accounting and How It Applies to Your Agency

Financial accounting...

 I’m sure there are plenty of other captivating problems to tackle in your agency rather than getting lost in your financials.

 But, as an agency owner, you really must understand basic financial accounting and how it applies to your business if you want a well-rounded view of your agency’s financial health.

 At this point, you may be wondering what financial accounting is and how it differs from the other types of accounting.

 Or, I may have already lost you to the cat video open in your other tab…

 Before you get completely immersed in watching a tiny cat try to climb up a slide, remember that your time is precious and those balance sheets aren’t going to tell you what you need to know unless you know what to look for.

 Let’s start by going over a few of the various types of accounting and how they relate to your business.


The Different Types of Accounting for Agencies

 For our agency clients, we primarily focus on financial accounting, management accounting and tax planning.

 What does that mean?

 Let’s dive in.


What is Financial Accounting?

Financial accounting is the aggregation of data that is put into financial statements, also commonly known as the traditional profit &loss and balance sheet.

 Historically, financial accounting was developed for publicly traded companies so relevant shareholders and potential investors could compare businesses across industries.

 Today, users of financial statements have expanded beyond shareholders and potential investors, to include suppliers, vendors, banks, employees, small business owners and government agencies, as the insights provided by financial statements has proven to be invaluable to the decision making process.

 Any business, whether public or private, for-profit or non-profit,  can benefit from having well organized financial statements that can be used as a tool to assess the performance and health of the business.


Main Objectives for Financial Accounting

Since financial accounting is the process of collecting, measuring, recording and presenting the transactions of an organization, the main objectives are to:

  • Create an accurate picture of business activity

  • Help organizations stay within the confines of the law

  • Present financial information to business owners so they can make sound investment decisions

  • Help to define resource allocation, and then help with the decisions on how you may want to adjust resource allocation in the future.


The Levels of Financial Accounting

Financial accounting can be implemented into a business at various levels.

 For new businesses, a base level of financial accounting is usually adequate to meet the needs of a growing business. This might entail reporting on cash basis (when cash is received or paid), and setting up a standard set of reports--profit & loss and balance sheet, as well as a high level of analysis.

 once your agency begins to scale and grow (possibly more rapidly), you’ll benefit from adding another level of sophistication. There might be a transition to accrual basis accounting (unless you started out that way), and doing a better job of recording revenue.

 Recording revenue involves ASC 606, also known as RevRec 606, which is the newest standard for businesses. It drives how agencies need to report their revenue earned and how they can match their cost to that revenue.



At this point you may be asking yourself, “How relevant is financial accounting to me as an agency owner?”

 The larger the business, the more valuable it is to have good financial accounting practices; but in any sized business, no matter how small, it will always be very relevant.


Financial accounting is the foundation of business intelligence.

You need a really good financial accounting foundation if you want to build a financial model, track profitability, and develop key metrics.

 If you run any sort of creative or marketing agency, these concepts should be pretty clear to you, as they are likely what you have to report on to your clients.

 It’s also relevant for any business who wants the ability to directly interact with financial statements; however, it comes secondary to the management accounting question of “what can you do with your strong foundation.”


What is Management Accounting?

Glad you asked.

 On the contrary, management accounting is less geared toward the external stakeholders in your company and focused more on internal, day to day operations.

 For example, imagine you sell two different services: creative design work and advertising campaigns.

 A detailed analysis of your resource allocation in each department may help you better understand how much you should be charging clients for each service.

 It’s quite possible that you underbid the creative design work, as it’s common to not take into account back and forth revisions, which run up costs. Management accounting methods will help you understand the margins of each department, what to charge clients, and what to pay your employees.

 Essentially, management accounting looks at the different variables that make up the business.

 You can think about it in terms of what kind of information you need as a CEO or COO in order to make the right decisions.

 It enables you to answer questions like:

  • “How profitable is X revenue stream”

  • “How efficiently are we managing X project” or even,

  • “How well does each individual employee or team inside my company perform and how do we get the right metrics and data to figure this out”


Management Accounting in Action

Management accounting is analyzing your sales pipeline and making judgements based on when revenue is going to get booked, how likely is it to get booked, how it influences your capacity to run your business, or even, how to 4x your revenue.

 One example I can think of is, there was an agency we worked with who was doing a big 3x revenue push.

 While typically this isn’t the case with most agencies, this one in particular had no problem generating leads and closing deals. They continued to take on more and more clients and hired more and more employees because they were just on a roll.

 Although things felt good at the agency, once we got hold of their financials, we were able to show them that their profit margins had shrunk significantly. They had essentially over-hired, and would need to continue at an exponentially larger growth rate, to maintain their previous profit margins. Just loosing one client would have spelled disaster. 

Fortunately, because they invested in management accounting, they were able to quickly see how tight their margins had become, and instead of continuing on with the fast pace of taking on new clients and hiring more people, they paused to re-strategize.

 They decided to use this newfound knowledge to re-organize their company, pause on hiring and instead, mentor their current resources up into more advanced roles in order to reduce their costs and even out the profit margin.

Cool right?

 As an agency owner, management accounting is arguably the main area you should be spending time in because this is where you can discover different ways to grow and be more profitable from the inside.

However, having your financial accounting foundation squared away allows you to see how your organization is performing as a whole and against the industry standard, and it also allows you to present that information to the people who might care: potential investors, partners and anyone who may want to acquire your company down the road.


Cost Accounting (yet another type of accounting)

Cost accounting is a subset of management accounting.

Traditionally, it applies more directly to companies in the manufacturing industry and can help these companies determine how much it costs to produce a single unit at different stages of the production cycle.

 But, there are other ways to adapt this accounting methodology to an agency business.

 For example, you can replace the word “unit” with the word “deliverable” to see how much a specific deliverable costs to produce at each stage of the project, and you can use this form of accounting to determine how profitable a project is based on the overall revenue produced.

 However, you probably won’t need to worry about this type of cost accounting as an agency until you are large enough to have the overhead to gather that kind of data.


Cost Accounting for Large Agencies

If you have the budget, there are some cool things you can learn from cost accounting if your agency is at the higher level: You can track by project, by day, or even down to the person, revenue that’s earned and costs that are incurred.

 This will easily allow you to see when a project is starting to get off the rails or identify inefficiencies in the system.

 But, if you have less than 70 employees, don’t even bother.

 Gathering this type of data is a painstaking process when done without expensive software solutions.


Cost Accounting for Small Agencies

Fortunately, if your agency is on the smaller side, there are other ways to glean the information you are looking for without needing to invest in software.

 Sure, the information won’t be 100% accurate - probably closer to 70%, but it’s good enough to base decisions on at the lower level.

 Here are some manual hacks to derive that information if you need it:


  • Track time against projects to calculate the burden cost rate for your employees. This data would include things like PTO, salary, benefits, and tools cost for each individual. Doing so helps with seeing the profitability of a project.

  • If your agency doesn’t do time tracking, you can just set a controllable margin and look at it from a firm-wide level. Doing so will help you determine if the benchmarks for your projects are off, and will provide granular information to help you see if you scoped something wrong, have inefficiencies, or must change your project.


What is Tax Accounting?

Tax accounting is pretty self-explanatory: it consists of accounting methods that focus on taxes and tax reporting. It involves tax planning, strategy development, and tax return preparation.

 Obviously, all businesses need to be prepared to pay taxes, which is why having a tax strategy is important, so I highly recommend reading this article to give you the full rundown on the benefits of tax planning for your agency.


How Does Financial Accounting Differ from Management Accounting and Tax Accounting?

Financial Accounting vs. Tax Accounting

As mentioned, tax accounting specifically focuses on tax reporting whereas financial accounting has more to do with the big picture of your organization’s financial health.


Financial Accounting vs. Management Accounting

One of the main differences is that financial accounting looks at organizations as a whole and is geared toward external users to validate and compare against other similar type businesses. Whereas management accounting is focused on internal users, and assessing and creating strategies for the business.

 It focuses on what you need to make the right decisions and helps you determine how profitability compares between two agency sectors, businesses, or clients.

 And contrary to financial accounting, management accounting looks more to the future.


Benefits of Outsourcing Financial Accounting for Agencies


Now you know the different types of accounting, but who’s going to handle the financials for your agency?

 You have a few options, which include:

  • Hiring someone in-house

  • Outsourcing to a firm 

 There are pros and cons to each option, but if you’re an agency with under 70 employees (5 to 30 especially), outsourcing your financial accounting to a firm can prove to be beneficial and more practical, than an attempt at matching the same capabilities with the cost of an in-house employee.


In-House vs. Outsourcing Accounting

While an in-house employee like a bookkeeper could help with some aspects of the business and potentially cost you less upfront, their knowledge base would be too limited to set your business up for real financial success.

 This is especially true if you hope to set your business up for future acquisition.

 It isn’t until you reach $3-5 million or more in annual revenue and have at least 50 to 70 people in your company that adding an in-house employee would benefit your business.

 At that stage, an in-house employee could help to streamline the company’s financial operations and actually help bridge the gap between an outsourced financial company and an agency, thus vastly expanding the capabilities of both parties.

 Although larger agencies can afford to hire someone in-house from the get go, I wouldn’t necessarily recommend doing only that.

 Rather than do that, I’d recommend starting with a financial accounting firm, then expanding the scope of your resources to include an in-house person.

 An in-house employee can only handle so much of the financial operations in their day-to-day work. A single person would have neither the time nor the resources to properly execute financial accounting plans, which is why having a team of people dedicated to an agency’s account is a more robust solution.


The Biggest Advantage to Outsourcing Your Financial Accounting

The biggest advantage to outsourcing your financial accounting, by far, is that it provides your business with a foundation for the future.

 When you first build your company and it’s small, your focus needs to be on creating a simple, effective financial model.

 This means having good, high-level reports to derive some analysis from.

 Businesses in the beginning of their journey who attempt to complete a financial foundation in-house run the risk of missing out on major tax opportunities, getting into serious trouble with taxes, or, making rookie mistakes that could end up coming back to haunt them.

 For instance, dipping into customer funds as an ad agency in order to cover agency cash flow expenses…

 Obviously, that’s a big ethical and legal no-no, even if you are able to pay it back before anyone notices.


Understanding Your Agency Finances

 The bottom line is that if you aren’t knowledgeable about your financial situation, you are leaving your business open to risk: potential issues with the IRS, limited ability to plan for taxes, and just plain bad decision making.

 In the same vein, having a team of professionals analyzing your finances can help plan for hiring and mitigate risk as your business scales up.

 So, to bring it full circle, hopefully now you can see why you should have clarity into your agency's financials from a financial accounting perspective.

 You can’t sell your agency, bring on investors, or make sound business decisions without it.

 Need financial accounting advice? Or maybe you are just looking for deeper clarification on the accounting methods we talked about here.

 Send me a message with the subject line "Financial Accounting Help" and we can go over your accounting questions together. 

Throw your financial statements away!

Throw your financial statements away!

Growing a profitable business requires you to leverage your data, cut through the noise, see the summit and navigate the right path to it.

 The finance team sits at the intersection of all of this information. Therefore, they should be relied upon to provide the right information and insights to grow revenue and drive profitability. Unfortunately, it is too rare receive the right information at the right time to drive results.

 Too often management is receiving financial information either too late or in a format that doesn’t help them predict the future and drive decision making based on those predictions.

 What’s causing this gap?

 Although there are several contributing factors, the one that is easily changed are your financial statements. These austere reports often contain too much information and the table format limits the ability to:

  • Spot trends

  • Analyze ratios

  • Focus on only the most critical information

 Dashboards and the right key performance indicators (KPIs) are invaluable.

 Combining you're financial, and some non-financial information can have a transformative effect on your business.

 You’ll spot trends, problems, and opportunities that would otherwise go unnoticed. Best of all, once you land on the right dashboard and KPIs it doesn’t increase your ongoing cost or involvement in accounting.

 We’ve seen how dashboards and the right KPIs have driven strategic decision making.

 11% increase in project profitability via better information…

 A dev studio was trying to track project status by pulling information from a slew of disparate sources—Trello boards, timesheets, monthly financial statements.

 Long story short, accounting and finance teams were trying to pull together too much information.

 By the time everything was reviewed it was too late in a project to make meaningful corrections and their profit margins were already killed.

 By integrating their timesheets, project management tool and accounting system into one graphic report, they were easily able to see team utilization, project status and budget vs. actual on a nearly real-time basis.

 These changes allowed the account team to be more proactive when requesting change orders or working through critical path items.

 Let’s raise another $1.5MM instead of going cash flow positive…

 A SaaS company has maintained a relatively lean sales team and seen steady, but not knock out, sales performance.

 Their original plan was to raise a small round from existing investors and maintain the existing cap table. However, it turned out they are likely leaving revenue on the table and reducing their future exit price.

 We started pulling information from their CRM and their accounting system to so they could track their customer acquisition cost to lifetime value (CAC:LTV) ratio. What quickly became clear is that their ratio was extremely high—implying that there was additional demand for their product.

 They realized they could grow much faster.

 As a result, they’re in the process of expanding their upcoming round goals so they can expand their sales team.

 Expanding sales is a common tactic, but now they have the data to support this decision and show investors how additional hires will likely impact future revenue growth.

 This decision was visualized for them when presented in one clear and concise channel. Visibility into their business drove meaningful change.

Just because you have a dashboard doesn’t mean it’s moving your business forward:

 Many owners and CEOs realize that they need to move from financial statements to a financial & non-financial dashboard. However, even if they’ve already put together a dashboard we often find major limitations.

 Common issues with a dashboard are:

  • Displaying too much information

  • Displaying the wrong information

  • Creating irrelevant ratios and metrics

  • Not thinking through the order of those metrics

  • Having a process that is too manual and therefore viewing outdated information

The goal of your financial dashboard isn’t to tell the whole story of an organization, but instead, convey the most important information in the least amount of time.

How can you execute on this?

 It’s critical that most information in your dashboard flow so that there is little effort required to update it. Truly critical aspects should be updated nearly in real time. Truthfully, this is easier for large companies to execute with fully integrated systems and the people to maintain and manage the data.

 However, smaller companies can execute on this by:

  • Gathering information that flows from various sources vs. performing manual adjustments

  • Simplifying assumptions for how to assign costs to projects, overhead or between departments

  • Creating a financial and operational environment that is easy for a small team to operate and integrate.

  Metrics vary by industry…

 There are common metrics that all industries track—revenue, net income, sales pipeline, A/R balances, payroll expenses.

 However, these are typically not the items that are most relevant.

 For agencies we find it critical to track the following areas:

  • Project progress (g., earned revenue) vs. costs consumed (team time + hard costs)

  • FTE utilization—or revenue to comp ratio for smaller agencies

  • Controllable margins at an agency-wide level

  • Revenue breakdown by—collection, billing, bookings, earned

 Whereas SaaS companies often need to focus on:


  • # of users/customers/ other base units of measurement

  • Gross/net burn rate

  • Months of cash

  • Product roadmap progress

  • Overall sales/marketing spend

 Regardless of the specific metric used to track these areas, it is critical to identify the true drivers of your business, measure them appropriately and display the right data on a dashboard.

 A thoughtful dashboard will allow you to spot trends that would otherwise go unnoticed.

 Once you’re able to spot trends, you can then go back to financial statements and the books to figure out what’s behind the trend.

 If you’re struggling with how to display your information, what information to track or how to structure your backend processes check us out and how we work at Richtr Financial Studio or drop me a line at

6 Tax Planning Strategies for Agencies

6 Tax Planning Strategies for Agencies

And 5 Tax Planning Mistakes to Avoid...

What tax planning strategies are you using for your agency?

 If the answer is “none”, you may be in trouble...

 With tax season coming to an end, it’s more important than ever for agencies to start planning for next year.

  • What is your cash management strategy?

  • How are you scheduling your tax payments?

  • How are you utilizing your business structure for tax credits?

 These are just a few of the questions that you may not know the answer to, but you should be thinking about as tax day grows closer and closer…

 But, before you get too overwhelmed, there is a light at the end of the tunnel.

 Tax planning doesn’t have to be an afterthought, and there is help available.

 I’m going to show you some of the main tax planning strategies for agencies we use here at Richtr for our clients and also explain some of the biggest mistakes I see agencies making when it comes to planning for taxes.

 But first, what is tax planning anyway?


What is Tax Planning?

In essence, tax planning is the analysis of a financial plan from a tax perspective.

 This process of deconstructing how specific tax items relates to your company throughout the year helps you determine how to act on those items in the most tax efficient manner before the year ends.

 If this sounds confusing, you’re not alone.

 In fact, the entire tax process  is so confusing that 67% of Americans believe it is unnecessarily complicated according to

 However, it is actually a fairly simple concept when broken down and digested piece by piece.

 Once you understand the goal and process, you can understand the benefits.


What is the Goal of Tax Planning?

The goal of tax planning is to analyze your income and make plans for the best ways to file taxes and decrease the overall amount of money you pay in taxes, for your business.

This should be done year round, and is made possible through collaboration with your business advisor and tax advisor. 


What Are the Benefits of Tax Planning?

The two core benefits of proper tax planning are:

  • Savings

  • Improved cash flow

Engaging in tax planning can focus your attention on areas you need to think about when looking to pay the least amount possible in taxes.

If you’re an agency owner who wants to minimize your tax payments and the amount you owe in taxes each year (and who wouldn’t), then tax planning is for you.


Tax Planning Process for Agencies

At this point, you may be wondering how the tax planning process works, and in what ways it calls for you to evaluate your business.

 How we work with our clients to ensure that they have a solid tax plan on the books can be broken down into three categories:

  • Business Structuring

  • Tax Payment Planning

  • Cash Management


Business Structuring

When we first onboard a new agency client, one of the first things we need to uncover is their business structure.

 This is because there are many different strategies an agency can utilize, but which one we recommend will depend on how the business has been structured.

 Business structuring should ideally be evaluated before and during the growth stage of your business rather than after.

 And I’ll talk more about that in a bit, but the idea is that if you choose the wrong structure, it’s harder to change once the business is up and running.

 Conversely, if you wait too long to decide on a set structure, you will likely lose out on tax savings you would have otherwise garnered.


Tax Payments

Another step in the process is planning for regular tax payments.

 It can be easy for an agency to forget to make their tax payments, simply because they were unaware that the payments were even due.

 Another issue might be that a business owner didn’t set aside enough money to cover the tax payments.

 Pre-planning for these payments helps agency owners think about how their income levels affect their obligation to make payments, as well as how to structure the timing of those payments.

 So, one of the steps we go through is to map out upcoming payments and keep our clients in the loop about when taxes need to be paid and how long they can wait to pay before incurring any penalties.

 Falling behind on tax payments can be a daunting situation for any business owner, but in the agency space where cash flow is hard to predict, it can be a killer.


Cash Management

Learning how to manage your agency’s cash income and structure how it fits into your tax payment plan is a necessary aspect of the planning process.

 Coming up with a set strategy for handling your agency’s income can have a huge effect on your efforts to minimize tax payments.

 Something worth noting is that a lot of our clients believe that they have to pay taxes right away, but in reality, you can prioritize where you put the money as long as all taxes are paid by the end of the year.

 We work with our clients to come up with the best plan for cash management throughout the year in order to minimize the impact of paying taxes all at once.



Tax Reduction Strategies for Agencies

Now that you know the main areas we evaluate during tax planning, here are some strategies you can use to reduce your taxes and maximize success.


Choose an Accounting Method and Stick With It

All agencies have the option to choose how they want to report expenses and income based on their business model.

 As an agency owner, it’s imperative that you comprehend the difference between the two main accounting methods: cash and accrual.

 Even if you have an in-house CFO or a partner like Richtr handling your financial reporting, it’s important to understand how each one works so we can all work together to make the best bookkeeping decisions for your agency.

 You can decide to report income and expenses on an accrual basis, which involves waiting until you complete a project to report the funds, or on a cash basis, which involves reporting funds as soon as you receive them and paying taxes on them that same year.

 The option you choose will make a difference in your company’s ability to schedule tax payments, which is why it is vital that you make an educated decision.

 Also, it is important to note that the method of reporting your agency uses should not be changed from year to year.

 Doing so has a high cost and requires owners to fill out a lot of forms each time they attempt to make a change.


Accelerate Expenses at the End of the Year

This strategy is for expenses you plan to benefit from toward the beginning of the year.

 Rather than paying at the time you need the product or service (say in February), you can choose to pay for the expenses before or on December 31st.

 Doing this will provide you with a tax credit for the expense, which means your liability for it is postponed by a year.


Find and Utilize Tax Credits

Tax credits are typically awarded as a way to promote positive behavior in employers; however, from a business standpoint, they are simply a means of receiving pure cash back from the government.

 Examples range from tax credits for providing education to credits for making energy-saving improvements to your business.



R&D Tax Credit

You may have also heard of the R&D tax credit, which has been used in the past to incentivize employers to hire U.S. employees.

 This particular credit is for companies that are researching and developing things that may not have technical feasibility—including software. The R&D tax credit is a great example of an angle for digital agencies, creative agencies, and development shops that is often overlooked. 

In fact, we find that many of our clients produce eligible work for their clients when doing software development, however, not all research and development activities will qualify you for this credit. The type of work required for eligibility is often higher-end custom development (standalone applications, some complex comma platforms or other complexities vs. modification of a template website, etc).


Which Tax Credits Do You Qualify For?

If you’re hoping to learn what tax credits are available to your business, we’d recommend tax planning services in addition to hiring a CPA, rather than simply relying on tax preparers during tax season.

 This is because it is hard, if not impossible, for a CPA to deduce the information needed to determine what tax credits your business qualifies for.

 They are only involved in your business’ financials for a short period of time, once a year - and usually they are looking at them from a historical perspective. Conversely, Richtr Financial Studio works with you to look into the future to help map what is to come.

 However, the regular meetings associated with tax planning provide more business context and thus increase our ability to identify possible tax credits.

 One way we might discover which credits are available is to regularly audit your business operations and transactions.

 This can help us determine which credits are available to your business under current operations and which may be available if you were to do the operations/transactions in a different way, thus allowing us to make the best recommendations for the future.


Increase Your Withholding

This is another strategy that can be used in certain financial situations.

 Although it’s typically a faux pas for someone to increase their withholding, there is one instance in which you would want to do so.

 If you made more money than usual last year, and you anticipate making the same amount this year, increasing your personal withholding would likely be the best decision.

 Increasing your withholding means that the IRS will take more money throughout the year (ouch), but you won’t have a giant sum to pay at the end of the year. The worst thing you can do is realize you owe the government a bunch of money, and you have nothing in your account to pay them!

 But, in all other instances, you wouldn’t want to increase it at all. If you increase your withholding without making more money, you are basically giving the IRS an interest free loan.

 Sure, you’ll get a nice refund at the end of the year, but for most agencies, that money would have been more useful supporting the business throughout the year rather than in the government’s pocket.


Lowering Your Tax Rate

One of the biggest goals when filing your taxes as a business is to lower your tax rate.

 Sounds simple, right?

 But, what if I told you it involves timing?

 The best time to lower your tax rate is when you’re making more than normal, but knowing when that will be involves a lot of planning and analysis of your business projections.

 It is also important to plan for what deductions you’ll utilize when the time comes to lower your tax rate.

 Remember: maximizing deductions lowers your net income. The lower your net income, the lower your tax rate.


Controlling the Time When the Tax is Paid

Some things are better discussed in private.

 Fill out our contact form with a note if you want to know more about this strategy that can be used for tax reduction.


5 Common Tax Planning Mistakes That Agencies Make

Now that you know the basics to tax planning, let’s talk about some of the most common mistakes we see agencies make when it comes to their taxes.


1. Not Choosing The Right Accounting Method 

This is the whole “accrual vs. cash” debate we discussed earlier.

 If you don’t decide on a set way to report income and expenditures, you’ll lose out on a lot of tax deductions.

 As a best practice, project-based agencies should use the accrual method and agencies that primarily do monthly retainers should choose cash basis reporting.

 If your agency does both types of operations, you can even structure the reporting to be a hybrid of the two methods - accrual for projects and cash for your monthly clients.


2. Choosing the Wrong Business Structure

A lot of agencies don’t think about business structuring until it’s too late to structure in a way that saves on taxes.

 Each of the four business structures have their pros and cons, and doing your research before starting your business is the best way to avoid making a mistake. However, there are ways to remedy a misstep, which is one of the main reasons why tax planning services are so helpful.

 Learn more about the benefits of each business structure and entity type to see if you may benefit from changing course.


3. Improper Amount of Cash in the Bank

The third item worth noting is that agencies must be aware of their cash flow, in order to best pay their taxes and maintain their company bank account and finances.

 You should always know just how much you can take out for investments while still being able to handle expenses like payroll.

 If you take out too much, your business can suffer.

 On the flip side, not taking enough out of the bank frequently causes businesses to miss out on investment opportunities that could have had a positive impact on their profit margins, which brings me to the next big mistake about cash flow planning.

 A rapid increase in company profitability can catch many agency owners off guard. Navigating cash flow and cash requirements throughout the year is critical when you’re in a rapid growth phase.


4. Lack of Cash Flow Planning

A lot of agencies have trouble with cash flow planning due to the nature of the agency business.

 Project-based agencies never know when the next big deal will come in, and monthly retainer-based agencies can have clients whose contracts dictate that they pay on some ungodly pay schedule (net 90? Come on).

 Or sometimes they pay late, or don’t pay at all (ouch).

 It is important to think about your obligations and decide how cash will be distributed after it’s deposited into your account. Even with proper cash flow planning, it can be tough to anticipate when cash will be needed or where it needs to go.

 But, without cash flow planning, an agency can find themselves dead in the water if a client pays late or breaks their contract.

 How can you pay your office rent? Your employees? ...Your taxes?

 Being able to predict cash flow and plan how it should be utilized in advance is better than having no insight and spending on a whim. Having a concrete plan is the only way to safeguard against unforeseen issues that could crush your business.


5. No Cash Projections

Not only do agencies need to have a plan for their cash, they need to have solid data backing up their plan. It is a mistake when agencies don’t create cash projections for their business.

 Having a cash flow projection is the best way to begin creating a cash flow plan.

 Understanding cash flow from projection to plan can help you make educated decisions for tax and business planning, which means you can be bolder in your business decisions and will be better able to determine when taxes need to go out, as well as how much each payment should be.


Why Your Agency Should Invest in Tax Planning

 The fact is, a lot of agency owners do not possess the knowledge of the tax system required to stay out of trouble with the IRS, but they don’t want to invest in the planning side of things.

 It can be tempting to buy a program like TurboTax instead of paying for outside help, but the truth is, having a professional by your side is safer and will save you more money in the long-run.

 Bottom line?

 Now that you understand the goals, benefits, and common mistakes of tax planning, you can see why moving towards organizing your agency to be more tax efficient is a win-win. And whether you decide to outsource the process of tax planning or take on the project in-house, your agency will reap the rewards of this investment if done right.

 Have more questions about tax planning that I didn’t cover here?

 Send Us A Message

We are always happy to talk shop with you.

What The New Tax Bill Means For Your Business

What The New Tax Bill Means For Your Business

With the new tax law changes, it may be important to quickly understand how the new US Federal Tax Bill that was recently passed into law will impact you and your company. While this law primarily impacts US companies and individuals, there are also international considerations such as a new US system of international taxation that could impact non-US based entities.


Below, I’ve tried to glean and condense the most relevant elements of an extensive and complex topic to provide insight and actionable info. If you made it this far, but are ready to be done with this topic(!) - then perhaps the best ‘life hack’ at this point is to reach out to your tax provider and ask them what you should do before year-end, and in the year to come.


With that said, after considering the below Disclaimer*, I hope that the following summary helps provide you with an understanding of some of the more significant aspects of this new tax law, and how they may impact you and your business:



  • A Holiday Gift? - The new tax law (passed 12/20/2017) is considered the most significant change to the US tax code in over 30 years.

    • While polls show that only 33% of Americans approve of this Republican tax bill, there will be a variety of implications that, for both better and worse will impact virtually everyone for some time to come.

    • Overall taxes to companies are expected to decrease by $1.5 trillion (over 10 years), however this is largely expected to be ‘funded’ by a $1.1 trillion increase in the National Debt, and the vast majority of tax cut benefits will be received by large corporations and individuals in the top income tiers.

    • Most will receive some benefit from tax cuts in the short-run; some quite significantly. However as personal tax rate decreases are temporary (expiring after 8 years) and numerous deductions have been eliminated, individual taxes for many will increase over time.

    • While the new law may ‘simplify tax preparation’ for some individuals by eliminating deductions, it complicates planning for others as they will need to understand new regulations and determine the best financial and operational strategy to not lose ground.  

  • Everyone’s financial/tax situation will be different - There will quite likely be both ‘good’ and ‘bad’ implications of the new tax law for you and your company. To optimize your financial position, it is important to consider and plan for the various changes relative to your specific business and personal situations.

  • It isn’t just you! If you feel overwhelmed by the implications of the new tax law - passed a few days before year-end at an otherwise busy time of year - you’re not alone. The new tax law (and tax code in general) can be inherently confusing due to the extent of changes as well as ambiguous and vague information. This can create challenges when attempting to determine options or the best course of action relative to specific individual or company situations. Some of the confusion will be resolved by subsequent bill clarifications and IRS interpretations in the days to come. In other cases the need to interpret and apply ‘best judgement’ will remain.



  • C-Corps Tax Rates Decrease – Perhaps the most significant provision of the new law is the large 2018 decrease in the C-Corp tax rate from 35% to 21%. This is the single largest ‘tax benefit’ provided by the new tax bill.

  • Taxation of “Pass-through Entities” Income - The new “Pass-through” provision will add considerable complication, and have significant tax impacts for owners of certain “Pass-through Entities” (e.g., S-Corps, LLC’s, and partnerships) which make up 95% of US business.

    • As this provision is poorly written, vague, and complicated – it isn’t yet fully clear as to which businesses, and what income, will and won’t qualify under this provision. It is all but certain that the IRS will be providing significant clarification and guidance.

    • Key elements that are known include:

      • The stated intent of this bill is to lower the tax burden on certain pass-through business owners through the deduction of up to 20% of certain earnings. The calculation of the deduction involves somewhat complicated calculations and phase-outs.

      • Certain ‘Professional Service Businesses’ such as doctors, attorneys, financial services companies, and consultants – ‘where the principal asset of the business is the reputation or skill of the employees or owners’ - are not expected to benefit from this deduction. Others who lobbied better such as engineers and architects are expected to benefit.

      • The impact on certain other service businesses such as marketing, PR, branding, and other creative firms is still uncertain and may end up depending upon how the activities of a given business are characterized.

    • As the status of this important, yet complex deduction isn’t yet clear – we’ll be watching closely for further guidance and analysis. We plan to follow-up further when it is available.  

  • Elimination of Entertainment Expenses – The new law eliminates the 50% deduction for ‘entertainment…or recreation’ – apparently even if incurred in conjunction with marketing activities to attract new clients. Historically, this deduction has often been available for sports and event tickets. The extent to which this will apply still needs to be clarified.

  • Business Meal Limitations - While the 50% deduction for the cost of business meals remains, meals provided on the company premises will no longer be 100% deductible, but rather a 50% deduction rate will now apply.

  • Elimination of Subsidized Parking & Transit Reimbursement – Employers were eligible to deduct up to $225/mo. (tax free) to subsidize parking and other transit costs. Beginning in 2018 this deduction is gone. That said, there is a different, more complex employee deduction available.

  • Business Loss Limitations – Beginning in 2018, excess business losses (which can be significant for some startups) may only be carried forward, but may no longer be carried back to prior years.

  • Research & Experimentation Expenses – Deduction for certain R&E expenses is still allowed, but certain R&E expenses must now be capitalized and amortized over 5 years.

  • Credit for Employer-Paid Family & Medical Leave (FML) – For 2018 – 2019, businesses may claim a credit for 12.5% of wages paid to employees on FML (assuming = 50%+ of normal wages).

  • Accrual Accounting Method Requirements Eased – The threshold requiring Accrual Method Accounting is increased from $5 million, to $25 million of receipts. In addition, the Cash Method Accounting may be used by most ‘Pass-through’  ‘personal service companies’ without a $ receipts limitation test as long as ‘use of the method clearly reflects income’.



  • The new tax law significantly changes the US system of international taxation.

    • Currently US based taxpayers are taxed on their “Worldwide Income”, regardless of where it is earned - but they are allowed to defer paying U.S. tax on their foreign profits until they ‘bring the money home’ (aka ‘repatriation’).

    • On the other hand, most foreign countries use a “Territorial System” whereby they don’t tax their citizens/companies for earnings they make offshore.

    • The new tax law switches the U.S. to a Territorial System, with some additional provisions, including one that allows for ‘repatriation’ of existing foreign subsidiary earnings to the US at a very low tax rate.

    • There are more international provisions that apply to individuals, but they are beyond the scope of this update.

  • The decrease in the US C-Corp tax rate from 35% to 21% will have significant international implications as it is more in line with the rates of other countries. Practically, it may end up impacting the tax strategies and transfer pricing of companies with US and foreign operations, as well as ‘make the US more competitive’.



  • Tax Rates Change –

    • Tax rates will temporarily decrease for most, but unlike the ‘permanent’ corporate tax cuts, they expire in 2025.

    • For many, the benefit of tax rate decreases will be offset by a reduction or elimination of deductions.



  • Standard Deduction Increases - It roughly doubles in 2018 from $13,000 (Married Filing Jointly (MFJ)) / $6,500 (Single (S)) to $24,000 (MFJ) / $12,000 (S). An important implication of this increased standard deduction is that it won’t make sense for many people to choose the alternate method of itemizing deductions.

  • Personal Exemption Eliminated – For many, the elimination of the Personal Exemption ($16,200 for a Married family of 4) more than offsets the potential benefit of the increased Standard Deduction.

  • Itemized Deduction Changes – Due to the higher standard deduction thresholds, many popular itemized deductions for individuals have been curtailed. In short, for some this may make certain activities such as making charitable giving and/or investments in real estate less financially beneficial. On the other hand, the overall limitation on itemized deductions has been repealed.

  • Itemized deductions eliminated or reduced include:

    • State & Local Tax Changes:

      • State & Local Income Taxes – This common deduction has been eliminated in 2018 except as noted. The loss of this deduction may be particularly costly to those in high tax rates states like CA & NY.

      • State & Local Property and Sales Taxes - Eliminated in 2018 except as noted.

      • State & Local Tax Exception >> In 2018 a taxpayer may still claim an itemized deduction up to $10,000 (MFJ) / $5000 (S) for a combination of the following:

        • State & Local Income Taxes - Paid and Accrued during the tax year

        • State & Local Property and Sales Taxes

    • Mortgage Interest Deduction Reduced:

      • Purchase Mortgages - The interest deduction limits on new ‘purchase mortgages’ of first and second homes was reduced to $750,000 of principal (previously $1,000,000) beginning in 2018.

      • Home Equity Loans - This commonly used element of mortgage interest deductions is eliminated beginning in 2018.

      • Impact: The loss of this deduction disproportionally impacts those living in areas like the coasts with high real estate costs. This reduced deduction is also set to be completely eliminated in 2025.

    • Radical Changes to Alimony - For the last 75 years, alimony has been deductible to the spouse making the payments, but included in the income of the recipient. However, for divorces or separations after the end of 2018, a ‘Divorce Penalty’ provision was added such that the ex-spouse that pays the alimony, effectively pays the taxes for the other ex-spouse that receives their alimony payments tax free.

      • 2018 may be an interesting year for spousal relations!

    • Unreimbursed Employee Expenses – Best to prepay as their deductibility will largely be eliminated beginning in 2018.

    • Casualty & Theft Losses – Casualty & Theft loss deductions have been eliminated beginning in 2018, unless the loss occurs within a disaster relief area declared by the president. Historically this deduction has benefited individuals impacted by fires, floods, hurricanes, robberies, etc. Moving forward this is likely to only help those that happen to be in large disaster zones.

    • Tax Preparation Fees & Other Miscellaneous Deductions - in short…they have largely been eliminated

  • Health Insurance - The ‘individual mandate’ (a requirement to purchase health insurance or pay a penalty) has been eliminated. It is estimated that 13 million more people will be uninsured in a decade as a result of this provision which is intended to eliminate the Affordable Care Act which has been credited with reducing the number of uninsured by tens of millions.

  • Deferred Stock Option Compensation – An employee (of a non-public company) receiving employer stock options or restricted stock options (RSU’s) can elect to defer the recognition of income tax (but not FICA or FUTA) on qualified stock transferred and settled after December 31, 2017. It is important to note that this election must be made within 30 days of first vesting.

  • Moving Expense Deduction – This deduction which has benefited those in transition (and didn’t require itemizing) has been eliminated after 2017.

  • Estate Tax Exemption Doubled - The estate tax exemption increases to $11 million (single) and $22 million (Married Filing Jointly). In short, this currently exempts all but 0.2% of estate transfers.

  • Section 529 Plans – These education savings plans, which have historically been limited to college education have been expanded such that they can now also pay for Kindergarten through 12th grade tuition.

  • Alternative Minimum Tax Remains - The alternative minimum tax remains intact, although with a higher exemption amount.


*Important Disclaimers & Considerations: It is hard to add enough disclaimers to this topic without making it longer than the actual content. While I and the Richtr Financial Studio team specialize in financial operations and strategy, and regularly interface with tax matters – we are not income tax specialists and we don’t know the specifics of your tax situation. Some of the above information has been simplified, and there are important caveats to consider. Also, while I have tried to use accurate and objective sources, it is possible, particularly due to the evolving nature of these recent changes, that all of the above information isn’t 100% accurate. Please let me know if that is the case. As such we need to emphasize that we can’t be responsible for the accuracy or outcomes of any of the above tax information. It is critical that you take full responsibility for any business or personal tax/legal decisions relative to your specific situation (including different legal and tax jurisdictions), and upon consultation with your tax and legal advisors as needed.

Are service for equity deals a good idea for your agency?

Are service for equity deals a good idea for your agency?

Service for equity deals can be great for both parties, but you need to understand the risks and have a structured approach.

Right now, we’re in the process of cleaning up another agency’s poorly executed service for equity deals. Unfortunately, we see this all the time. Because they didn’t have the right advice while structuring their deals, nor a standard approach to executing them, it may cost them a lot more in taxes than anyone had ever anticipated.

As many agency owners know, these deals are just part of working with start-ups. Everyone knows that cash is king, but sometimes you have a great project from a promising company that is too good to pass up. It’s even better if you’re in a lull between projects.

When accepting a service for equity project can be smart:

The project is discrete: To both minimize the potential tax burden and vesting complexity it’s important that the project has clear deliverables and a short, defined time parameter. Pragmatically it helps you move through a project lull and back to cash generating projects

Founders are sophisticated: Equity deals are complicated. If you’re working with an unsophisticated founder you’re more likely to negotiate a bad deal that may result in higher taxes and will cause future headaches

The company is pre-angel investment: This will help limit the valuation of the equity you’re receiving. But, most importantly, a start-up with funding should be paying you in cash (or at least mostly in cash)

So, you want to move forward with the deal…

A lot has been written about these deals from the start-ups perspective, but they rarely consider the risks and needs of the agency. In almost all deals the agency is committing real cash, via payroll and taxes on phantom income. Plus, you’re committing to being a shareholder in an early stage start-up.

Here are some important considerations for you before charging ahead.

  • Invest in a good lawyer & accountant. We, and good business attorneys, see these deals all the time and can help you quickly reach a good deal (or tell you to walk away)

  • Consider the costs. It’s a common misconception that service for equity deals are free. But, because you’re being given something of value the IRS expects you to report income. Additionally, if you’re vesting in your equity and don’t file an 83(b) election with the IRS, your tax bill can grow exponentially if the value of the company rises. Finally, you need to consider the costs you’re going to incur servicing the work

  • Figure out how much equity you should receive. How much you could expect to receive depends a lot on the nature of the relationship. For example, is it a quick design project, a custom-built app or a long-term marketing relationship? Regardless, you don’t want to complicate their cap table and limit their ability to raise money. Expect between 0.25% and 2%. It’s important to structure your services based on these expectations

  • What type of equity should you ask for. Most deals should be structured as common stock (or units in an LLC). It’s simple, it doesn’t complicate the cap table. If you’re going to have an extended engagement; stock options or vesting profit units can help manage your tax bill. This is where working with an attorney is critical

  • To vest or not to vest? Too often agencies accept multi-year vesting schedules or vesting based on hard to verify benchmarks. Unless you’re asking for a lot of equity or promising certain outcomes this just complicates everyone’s life. For a short-term project for little equity you should try to receive the equity as soon as you deliver the final project

  • Assign a value. We’ve seen a number of agencies claim, in their SOW, that their price is 20 – 30% higher in a service for equity deal than if it was a cash deal. Their idea is they will get more equity by doing this. But, you usually just end up with a higher tax bill. Often, you can expect to get around half the equity for your fees than if you had invested cash. To manage your tax bill, it’s critical to work with your finance team on structuring the scope appropriately for the equity you receive

Take a long-term approach. If these sorts of deals are appealing to you, it’s important to set up the right structure. One service for equity deal is unlikely to pay off.

If you find the right channel you can build up a portfolio of investments that have a better chance of paying off. The key is getting enough deal flow that you can quickly slot in a service for equity project during slower periods.

The other aspect is working on a standard approach with your attorney and accountant. In a sense, being able to come to the table with solutions and a defined way of operating. This will allow you to work through these deals quickly and cheaply.


*Important Disclaimers & Considerations: The above information is based on my own experience in working with our clients’ service for equity transactions but is not representative of every scenario out there. To be sure of what is right in YOUR situation, be sure to consult with an attorney and finance team.

Year-end Tax Planning Moves You Should Be Making (Dec. 2017)

Year-end Tax Planning Moves You Should Be Making (Dec. 2017)

Happy Holidays!


HOWEVER…if you thought this time of year wasn’t already busy and interesting enough - the newly passed US Federal Tax Bill (12/20/2017) just made 2017 year-end (& 2018) tax planning a lot more interesting (and complex)! 

The recent tax bill may be the most significant change to the tax system in our lifetimes. In some ways it simplifies your filings, but given the scale of the changes being made it creates a whole host of tax planning opportunities and changes going forward. I hope you have been able to read our separate “What The New Tax Bill Means For Your Business” blog post which outlines key changes in more detail.  

To assist in your tax planning, below we have provided an updated list of potential tax planning considerations. The list isn’t exhaustive, but given that you only have a few days left in 2017, we encourage you to focus on important tax moves you need to make before year-end while time permits.


Don’t hesitate to reach out to us, or your tax advisor immediately to see what opportunities exist. Some of our clients have saved several thousand in taxes by acting fast in this rapidly evolving tax environment. 

All said, after considering of the below Disclaimer*, I hope that the following summary helps provide you some actionable tax savings information:



  • Deferral of Income – As 2018 tax rates are generally expected to be lower than 2017, we generally recommend deferring as much income as possible to 2018 - regardless of the type of tax entity.

    • However, in certain cases, if you live in a high tax state (such as CA or NY) it may make sense to accelerate income - especially if your business is clearly a service-based business that likely won’t be eligible for the 20% pass-through deduction. The calculation isn’t straight forward, so it would be best to discuss with your tax advisor.

  • “Pass-through Entity” Income – The brand new “Pass-through” provision for personal service based businesses will add considerable complication, but will provide significant tax planning opportunities for owners of certain “Pass-through Entities” (e.g., S-Corps, LLC’s, and partnerships). As the status of this deduction isn’t yet clear for many business entities, we recommend you coordinate with your tax advisor re. the tax planning opportunities available for your business.

  • Income Deferral Opportunities May be Readily Available by:

    • Prepayment of Business Expenses – Prepay and incur business expenses to the extent possible and financially feasible.

      • Consider bonus payments, and/or funding retirement plans for employees and/or owners.

    • Capital Asset Purchases - Consider if any additions of capital assets (computers & electronics, autos, furniture, software, etc.) can be made and expensed before December 31:

      • Property Reg’s permit assets of less than $2,500 to be expensed immediately

      • Immediate expensing of assets may be allowed under the ‘Section 179’ or ‘bonus depreciation’ deductions.

        • Note: Some states don’t allow these accelerated deductions, so some state adjustments may be needed

    • Prepayment Entertainment Expenses – As the 50% deduction of entertainment expenses will be eliminated in 2018, it is recommended that you consider pre-paying for 2018 business entertainment expenses such as sports or theater tickets prior to year-end.

    • Asset & Investment Write-offs - Review your balance sheet to consider if it's possible to dispose of any worthless or impaired assets (inventory, accounts receivable, etc.)

  • Consider R&D Credit Opportunities - This credit has been expanded, and can be extremely valuable for companies to create new or improved functionality, performance, or quality of a business component.

  • International –As the US decreases its tax rates and changes its system of international taxation from one based on “Worldwide Income” to a “Territorial System”, there are significant tax planning opportunities.


***Remember, business sense should NOT be overridden by possible tax benefits!***



  • Update All Employee’s W-4 Forms:

    • While the new tax rates will take effect Jan. 1, it will take some time for the IRS (and states) to update their tax forms and withholding tables. The payroll services will then need to update their withholding tables.

    • The best way to prepare is to plan to update all employees' Form W-4s (2018) when they are available from the IRS (or an equivalent version from your payroll service).

    • Employees should not expect to see changes to their paycheck immediately. After the IRS has updated their tax tables, and employees have updated their W-4s, the amount withheld from an employee's payroll will change. This will likely be in February 2018. In addition, any catch-up amounts will be adjusted for automatically.


  • Deferral of Income – As for most businesses, 2018 tax rates are generally expected to be lower than 2017. As a result, we generally recommend deferring as much net income as possible to 2018.

  • Itemized Deductions - For many individuals and families, it will quite likely make sense to maximize 2017 itemized deductions (including ‘prepaying’ 2018 deductions where allowable) for 2 reasons:

    • Your 2018 income tax rates will likely be lower

    • You may ‘lose’ deductions deferred to 2018 for a variety of reasons including elimination or reduction of deductions, or you don’t end up itemizing due to an increased ‘Standard Deduction'

      • Note – While the above info will apply to many, there are numerous potential complexities and factors such as phaseouts and year-over-year changes that individuals will need to consider relative to their situation.

    • If you anticipate itemizing this year, consider making some of the following adjustments:

      • As the deduction of state & local taxes has largely been eliminated in 2018 (with some exceptions) Here are ways to take advantage of these deductions in 2017. 

        • State & Local Income Taxes – Pay the full amount of state and local income taxes you owe for 2017. [Hint: If you are currently making quarter tax payments, make your planned Q4 estimated payment plus any additional state income tax payments you expect to owe on your 2017 return). BUT…don’t prepay for 2018 as these prepayments have specifically been excluded as potential deductions.

        • State & Local Property Taxes – Prepay your 2018 property taxes on your residence and 2ndhomes if you have already received an assessment (where your county allows). [Unless likely to be subject to Alternative Minimum Tax]

        • State & Local Sales Taxes – If you have utilized the sales tax deduction previously, or have made other high-priced purchases this year, consider making anticipated high-priced purchases in 2017.

  • Consider Prepaying Charitable Contributions -  Prepayment reduces income and allows for deductions that may be lost due to the higher standard deduction in 2018.

    • This is especially applicable for gifts of appreciated stock

  • Mortgage Interest – pay your January mortgage payment by Dec. 31st to accelerate the payment of interest

  • Misc. Deductions

    • As almost all are being eliminated in 2018, to the extent possible accelerate payments/purchases of planned expenses to meet 2% AGI floor (if not in AMT). These may include:

      • Tax preparation fees

      • Work-related education expenses

      • Other unreimbursed job expenses

      • Investment related expenses

 Other Strategies:

  • Retirement/Health Accounts – As always, make timely retirement plan (401(k), IRA, etc.) & Health Savings Account (HSA) contributions

    • Due to lower marginal rates, consider a Roth IRA conversion in 2018

      • Note that the new tax bill prevents you from undoing this, so careful tax planning is important

    • Paying for Education – 529 savings plans will allow you to pay up to $10K in private school tuition from these accounts

      • If this is an educational goal for you, consider a balloon contribution early in your child’s life to really take advantage of the potential tax savings

    • Medical Deductions – Bunch medical deductions to exceed the new 10% AGI floor (effective 2019)

    • Payroll withholdings – Review your payroll withholdings in February of 2018, especially if you’re subject to the 0.9% Medicare surcharge on earned income

      • The IRS doesn’t anticipate having their withholding tables updated until at least February 2018, making it difficult to manage your tax withholdings before then

    • New dependent care credit – As an FYI there is a new $500 temporary credit for non-child dependents

      • This can apply to a number of people adults support, such as children over age 17, elderly parents or adult children with a disability.


May Your 2018 be Prosperous!