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

Painting Biz Owners: Learn When to Exercise Caution in Deferring Income. #TaxSavingStrategies

Name: Painting Biz Owners: Learn When to Exercise Caution in Deferring Income. #TaxSavingStrategies
Uploaded: 2024-11-18T14:15:05+00:00
Duration: 57 s
Channel: Daniel Honan
Description: In this brief dialogue, Speaker A explains the concept of income deferment for cash-basis taxpayers, illustrating that work performed in 2024 but paid on…

18 Nov 2024 · 1 min

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In this brief dialogue, Speaker A explains the concept of income deferment for cash-basis taxpayers, illustrating that work performed in 2024 but paid on January 1, 2025, allows the income to be recognized in the year it is received, thus postponing tax liability. Speaker B expands on a practical application for painting business owners: running a customer reactivation promotion in November or December where services are rendered but payment is delayed until January 1. He advises taking only a low deposit, ensuring sufficient cash reserves to cover expenses for the interim period, and warns against using this strategy if the business lacks solid cash flow, emphasizing that the tax benefit should not compromise financial stability.

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With income deferment, you are trying to recognize income more slowly. In this situation, you are going to sell work, you're going to perform that work in 2024, but you're not going to collect the income until January 1st of 2025. I want to emphasize this for cash basis taxpayers: you do not have to pay the taxes on the money until the year you receive it.
It makes sense to do like a customer reactivation where you have your good customer list, do a special offer to them, painting in November, December, send out an email blast or text message or direct mail flyer, no money until January 1st. Let's say you do the work in November, December for them. You don't take any money down, or maybe just take a low deposit, then you collect full payment January 1st. Make sure you have cash available. You had a good solid year. You're not struggling financially to do this tax strategy. Don't do anything that doesn't make financial sense. You want to make sure you have some cash that you can actually be okay for a month or two to float that until January 1st.