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How can I control my year end business income and expenses?

If you are self employed, or run your business on cash (not accrual) accounting, please read on.....

Cash Accounting means that income is measured by actual deposits into your bank account during the year and expenses are measured by payments withdrawn from your bank during the year.

This is different from accrual accounting. Income is measured by the date your client was billed, regardless of when the payment is received. And expenses are measured by the invoice date of a bill and not when that invoice is actually paid.

Cash accounting almost always applies to self employed and many small businesses.

Cash accounting allows you to control your income and expenses at year end.

For example, let's say you have just finished doing a project for a client or provided a service. If you delay billing that client until January and aren't paid until then, that's not income for 2021. It's deferred to 2022.

And let's say you just received a bill from a vendor dated today, but it's not due until January. If you pay that bill now, it's a tax deduction this year.

Controlling income and expenses can help you lower your taxable income this year. Meaning taxes are less this year. Which is almost always a good thing!

So if you have a choice of timing your income and expenses before 12/31, take this into account.

I hope this helps. If you have questions, please let me know.

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