Tax Strategy: Defer Income

This is Daniel from BookkeepingForPainters.com, and this video is on a tax strategy called deferring income. So the purpose of this video is to review this tax strategy and to also review some tips on implementing this tax strategy in your own painting business. So what is deferring income? Basically what it is, is you're asking your customer to, instead of paying you this year, pay you next year. So it's best done in the last quarter or last month of the year in December, if you have— if you're working on some painting jobs, instead of having that customer pay you that month in December, just say— just ask them to pay you in January. And that's as simple as that. And so what that actually does is that it makes that income taxable in the following tax year instead of taxable in the current tax year. So you're basically delaying your tax liability. And this is a pretty good strategy. The things I like about it is that it's pretty easy to do, right? Especially if you're working with customers that you've worked with in the past and you trust them. You know, you just ask them, "Hey, can you just hold on to your final payment and pay me on January 1st?" So it's pretty simple to do. It's also usually the customers that you have they're more than willing to delay payment in most cases, so there's not much objection for doing that. Now, I do have some tips on when you implement this strategy is you always want to keep track of who owes you money, especially if you're doing this, because you don't want to forget about— if you do a job in December Make sure you collect that money in January because otherwise it's not going to be worth doing this tax strategy if you forget to follow up with your customers. So always keeping track of your, what accountants call your accounts receivable, who owes you money. Don't overextend yourself is another big thing. So, you know, especially going through the slower period, a lot of residential repaints, the slope season is usually in the winter. Cash can be strapped, so, you know, if you're doing this strategy, don't overextend yourself. Make sure you have a good understanding of how much cash you have coming in and going out when you do this. And third thing is remember that the income will— you will be taxed on it. It will just show up in the following tax year. So it's— this year is 2018, you know, if I if you were to— if you had a customer, you painted their house, or you painted the inside of their house in December, and you told them to pay you on January of 2019, when you do your taxes in March and April of 2019, that income won't show up on your 2018 tax return, but it will show up on the following year. So just keep that in mind. And I highly recommend that you only do this with customers you trust. So if you don't have a good feeling about the customer, you know, either would be slow or late on paying you or not paying you at all, definitely don't do this strategy with those types of customers. Make sure you kind of trust the customer that you're implementing this strategy with. Now, this strategy can definitely save you hundreds or potentially thousands of dollars if you do implement it. It just does take a little bit of tracking and being cognizant of where that money is going. So hopefully this was helpful. If you are interested in learning more about any tax tips or bookkeeping, make sure you go to bookkeepingforpainters.com, sign up for either webinar or our free ebook. Or, um, schedule a free consultation by hitting the contact button. Talk to you soon.