How do you keep deposits for new work, or recent draws on projects from being ‘income’ when you do your taxes for the year as an LLC?
Is it a timing thing?
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It's a timing thing for me. Income/outgo from Jan 1 till Dec 31.
If you don't want it now, cash the check Jan 1.
If you need more deducts-write the check b/4 Jan 1.
Don't know if it's the way to go, but it is the simple way.
A Great Place for Information, Comraderie, and a Sucker Punch.
Remodeling Contractor just outside the Glass City.
http://www.quittintime.com/
"Don't know if it's the way to go, but it is the simple way."
Makes sense to me. To my limited but usually adequate understanding.
Thank you Calvin,
Pat
Are you on an accrual or cash basis with your accounting?
cash.
Then as soon as you receive the money it is posted to your books and it is income for the current period. If I write you a check on Dec. 15 and you deposit it on Dec. 16, you have income for this year. If you deposit it next year you have income next year.
Good. Thank you.
I do have a draw that I will wait to deposit.
And several good sized bills to pay and clear out of accounts next week.
Timing.
it use to be common practice for us to write a ton of checks before 12-31 when they got mailed was another story... but no deposits were made in dec if we could help it... it even made sense to use a line of credit in dec vs make'n deposits...
it was a profitable game to play at the time...
p
This is the first season I've had bigger draws like this.
I started thinking about that $$ last month and what it meant for tax time.
May I ask how it 'was a profitable game to play at the time'?
If the income just pushes on to next year doesn't it all just play out?
"If the income just pushes on to next year doesn't it all just play out?"
Not if your business plan is to make less next year, then you did this year.
Not much of a plan...... is it?
I will very likely make less next year and I've pushed some income into '09.
David---- I am not sure you are entirely correct.-almost correct-but not entirely. Let's say I pay you by check on 12-12-08-----and you choose not to deposit that check untill 1-2-09-------when is it income?---it's income on 12-12-08 because that is when you had controll of the money-- i think the IRS has some term--"substantial benefit"---and you can't postpone the "substantial benefit'--by simply postponing a depositAs a practical matter small time guys like us can probably finagle it and delay deposit for a few weeks and no one is the wiser---but technically---it was income 12-12-08Bill Hartmann I am sure could have explained this much better than i can-he was always good ant sussing stuff like this out.
Best wishes, Stephen
Stephen, I know you are correct but the small time guy can put the check in a drawer and deposit it when he wishes. Only under extraordinary circumstances would it be detectable by any authority. They will look at bank statements for an audit.
I am expecting to have MUCH less income next year--maybe 1/4 of my 2008 income. didn't there use to be something called "income averaging" for large fluctuations in income?--wonder if that is still in effect?
stephen
Anyone who advises you to hold a deposit till 2009 to avoid paying income tax in 2008 is advising you to comit a felony.You get out of life what you put into it......minus taxes.
Marv
I'm pretty sure that income averaging was done away with by the IRS around 1986. IIRC, I wanted to use it around that time and that option was removed. Just double check with your accountant.
Actually, you might get lucky. If our new administration gives out money to all the poor folks the way it sounded during the elections, the gov't may take pity on you and send you a check. :-)
Don K.
EJG Homes Renovations - New Construction - Rentals
You are correct.I believe the irs calls it constructively received or something similar.But that and writing checks at the end of the year that you know won't be cashed next year you don't need to worry about the IRS going after them.If they did there would not be anyone left including the IRS people.And yes income average has been out for a long time. I think that there is still income averaging for farmers in limited context, but that does not do you any good.One thing that you can do this time of the year if you need a write off, but don't have the cash is to buy equipment on a credit card.True in store credit does not count. But using a 3rd party CC is the same as getting a loan and then using that to buy the equipment.And again you have the "magic timeline".You need to put the equipment into work this year.So buying a $7500 bobcat "knowing" that the ground is frozen and you won't be able to work it until March TEHCNICALLY does not count. Or buying a $500 demo hammer for a job that starts in Jan.But like timing checks and deposits it is common practice and done all the time.
.
William the Geezer, the sequel to Billy the Kid - Shoe
Bill - glad to see you back.
Income averaging is only allowed for farmers.You get out of life what you put into it......minus taxes.
Marv
it was profitable IF you had a really good year for some reason... and you knew this going into dec... we had large military contracts alot of them were one shot deals... or you never knew if they'd renew...
if the next year was good also... then you started in november pay'n bills and not make'n deposits...
on huge contracts we often made more profit by getting discounts by pay'n early... sometimes as much as 5% if we paid COD vs our normal 90day terms... doesn't sound like alot but if it was a 500k deal and we cleared 50k... that 5% was 25k... thats 50% more profit... just for pay'n a bill you were going to pay anyway... even if i used a line of credit to pay it early... there was usually less than 20 days between when we got paid and when we paid... 500k for 10-20days only cost maybe $1500? if you did your weekends/ timed it right you could cut it down to 5-$700 in interest... I had alot of fun play'n these games... made for a great month to make an extra 25k...
p
But then you deposit all those checks in January and don't have any expenses to go with them. Government sees it as ALL PROFIT. Then what? Hold off on making deposits the next December and November? lolLegal Disclaimer: The preceeding comments are for entertainment purposes only and are in no way to be construed as professional advice. The reader of these comments agrees to hold harmless the poster, EJCinc, from any and all claims that EJCinc offered professional advice, ideas, or comments to the reader that may or may not have resulted in the damage, injury, or death to the readers property or person.
I'm not a tax guy so don't go on what i say... but we had IRS agents come live with us for months at a time... yep they can move in with you... they request desk space and power... and they basicly show up everyday and look at everything you have done... what i learned from this is... as long as everything adds up and balances they really don't care... if you deposit 1k for the year and you have spent 1k for the year... as long as everything as a trail they can follow... year to year they don't seem to care... since you only file a return once a year... they don't care if you do all your business for that year in one day...
just my take on it
p
They were there for months?! WOW! Did they actually live with you, or just there during work hours?
I'm not a tax guy either I've just always been under the impression that, if you wait to deposit the money until the beginning of the next year your making this year look less profitable for tax purposes, which is a good thing. But then the next year you have all this income without the expenses so you end up looking more profitable than you really are. So either you have to have a bad year to even it out or shift even more money into the next year. Just seems like the gov will get the money at some point.
Legal Disclaimer: The preceeding comments are for entertainment purposes only and are in no way to be construed as professional advice. The reader of these comments agrees to hold harmless the poster, EJCinc, from any and all claims that EJCinc offered professional advice, ideas, or comments to the reader that may or may not have resulted in the damage, injury, or death to the readers property or person.
Edited 12/17/2008 9:24 am ET by EJCinc
felt like they lived with us... but no they would show up everyday at our office for months at a time... doing a FULL audit... firs time the lady spent well over 90 days there... at the end of it... she found that we owed $53... yep less than 75 cents a day for her time... the next time it was the same deal maybe 5-7 hundred dollars... both times they were wrong but whos going to argue.... just write the check
p