As a sole-proprietorship living in the US.
If I make $50000 income and I spent $10000 in advertising. My taxable income is $40000, correct?
Now, if I re-invest the entire $40000 back into advertising before the end of the tax year and when tax day comes I still haven't made a single dollar out of the $40000 I just re-invested back into the company, how much would I owe in taxes?
Would I have to pay taxes on the $40000 or could I wait until after I get the sales?
Advertising is not an investment, its an expense.
It looks like you're confusing things. You can reduce your taxable income by the relevant expenses (which are ordinary and necessary ). Reinvesting into your own company (i.e.: adding capital to your business) is not an expense. Its addition to your basis. You cannot deduct it from your taxable income.
I suggest you get a consultation with a EA/CPA licensed in your State to clear things out for you.
First, only a qualified professional (typically a CPA) can give you advice on this topic. Please take the following as general guidance.
When you say "if I re-invest the $40k into more advertising," you are using the term "invest" differently than how economists or accountants would use the word. You may hear MBAs and business-people say things like "you have to invest in this program to make money," where they imply that spending money is investing because "it takes money to make money." Well, that's not how investing is technically defined in the academic subjects. In economics and accounting, you generally only consider investing when you purchase an asset (such as land, machinery, or stock in another company to name a few). You then would put that new asset to work to generate a return. This process of purchasing an asset and using it to get a return is investing.
In your case, spending the additional $40k is not purchasing an asset. You are giving money to someone (or something) else in exchange for their services in spreading your message. We consider this an expense.
You are right that generally you may reduce your taxable income by increasing expenses. And in general I can't think of a major red flag for this decision. However, I do have two thoughts for you to consider:
Hope that helps. To re-iterate -- see a professional!