Is it possible to delay customer invoices to the next financial year so I can save tax?


5

I'm operating a startup in its 1st year. This year's sales from consulting services is very good but the pipeline for next financial year is very very weak.

My question is, legally, can I delay some of the customer invoices until the next financial year - so I don't need to pay taxes on them this year

Appreciate your response.

Regards

Finance Tax Accounting Accounting Method

asked Oct 10 '10 at 06:43
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User4737
26 points
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1 Answer


5

Yes, it is perfectly legal to do this. In fact many businesses, small and big, play these sorts of games to reduce their tax bills. A good accountant can help you with this.

Something to keep in mind, however, is your accounting method. Are you using Cash or Accrual? The technique you describe mostly makes sense with cash accounting, not accrual. In cash basis accounting, you record an event (income or expense) when cash exchanges hands. In accrual basis accounting, you record the event when work has been performed, regardless of when the payment was made/received. So let's say you performed services for a client in 2010, but didn't receive the payment from the client until 2011. Under the cash method, that income will be recorded in 2011. Under the accrual method, the income will be recorded in 2010.

Bottom line: Yes, it is legal to delay income in an attempt to reduce your tax bill. However, depending on your accounting method (and possibly other factors), doing this may not actually make a difference.

For more on this see IRS Publication 538 Accounting Periods and Methods.

answered Oct 10 '10 at 10:09
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Zuly Gonzalez
9,194 points
  • Hi Zuly, Thanks for your reply. I do accounting on Cash basis, and from your reply I understand that it can be done. Please can you suggest me if I can ask my Accountant to help me with this issue? is this something I can talk to him freely? Best Regards B – User4737 9 years ago
  • Yes, this is definitely something you can talk to your accountant freely about. There is nothing illegal about it, and it is a common technique. Best of luck to you! – Zuly Gonzalez 9 years ago

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