Daniel HonanFounder, Profitable Painter CPA PLLC · I help painting contractors increase profits & cash flow while reducing taxes♦ Bookkeeping ♦ Tax

Painters Tax Strategy: Defer Income at the end of the year to save big in tax

Name: Painters Tax Strategy: Defer Income at the end of the year to save big in tax
Uploaded: 2023-04-29T01:13:56+00:00
Duration: 57 s
Channel: Daniel Honan
Description: In this short instructional video, the speaker explains a simple tax‑saving strategy for painting businesses that operate on a cash basis (the majority…

29 Apr 2023 · 1 min

Watch on YouTube

0:57

In this short instructional video, the speaker explains a simple tax‑saving strategy for painting businesses that operate on a cash basis (the majority of firms under $10 million). By asking customers to postpone payment until January 1 of the following year, the business can defer the associated taxable income to the next tax year, effectively delaying the tax liability. The speaker outlines how to market this as a holiday‑season special, and provides a concrete calculation: deferring $10,000 of revenue at an effective tax rate of 15‑25% yields roughly $2,000 in tax savings. The overall message is that a modest change in payment timing can translate into significant tax savings for small painting contractors.

Chapters

Here's a simple hack to save you thousands in taxes in your painting business. If you are a cash basis taxpayer, and 99% of painting businesses under $10 million are, you can save thousands in taxes pushing the receipt of the income from your customers into the next tax year. The fancy term for this is income deferment. You tell your customer not to pay you until January 1st of the next year, and that effectively pushes the taxes you'll owe on that money to the next tax year, assuming that you're a calendar year taxpayer. I've seen several painting businesses take this idea and run a marketing campaign to their past customers and say that they have a holiday season special where they can get interior painting done, but they don't need to pay until January 1st. The way to calculate the savings of this tax strategy is basically to take the amount that you deferred into the next tax year. So let's say it's $10,000, then you multiply it by your effective tax rate. For most painting businesses, this is anywhere from 15 to 25%. With the $10,000 deferred to the next tax year, that would save you about $2,000 in taxes.