Tax question

W

wc86

Member
Location
Massachusetts
Occupation
Electrician
Hello does anyone know if material, equipment, tools bought in 2023 can be expensed in 2024? Work was done and payment recieved in 2024.
 
With accrual accounting methods the date of the expense might be date of purchase order or possibly the date you acquired the item(s) even if actual bill payment was later, and your invoice date is the sales date, even if you collected the payment at a later date.

For cash accounting methods date of expenses is date you pay the bill, even if it was 90 days after being invoiced. Basically same for incoming funds, day the customer pays you whether day of invoice or eight months later:cautious:, day you received payment is the date it goes into the accounting system as income.

You normally don't write off bad debts from customers if using cash accounting methods, simply because you never declared what they owe you as income yet, can't write off what you never had. Similar if you happen to not pay any bills for whatever reason - they are not expenses until actually paid.

With cash methods you probably can fudge a little at times, like customer pays you on last day of month, you probably not having any issues claiming that as a payment on first of the next month, particularly if that is the day you deposit it. Same with paying a bill. Write a check on last day of a month and either give directly to recipient or even mail it - chances are it is a couple days minimum before your bank shows it as a debit to your account, but you dated the check on last day of the previous month, just don't try to claim it as an expense in both months or both years if talking December/January - that is not allowed at all.
 
So I just really started doing side work so I dont know if I'm asking ridiculous questions. I have expenses that i want to deduct from 2023(December), but i didnt get paid for the 1st job until 2024(January). If i try to deduct those expenses on my 2023 returns will I lose out on them being able to offset taxes on my 2024 revenue? I also have a day job with a standard w2
 
kwired said:
You normally don't write off bad debts from customers if using cash accounting methods, simply because you never declared what they owe you as income yet, can't write off what you never had.
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Bad Checks removed by Bank remain on Bank Statements "Deposits & Additions," so this record must be dealt with.

Delinquent totals are reported in IRS Form Sch-C Part V as "Bad Checks Bad Debt"

So yes, it becomes a write off to offset the bank statement record, which must be counted as income.
 
ptonsparky said:
Have you gotten your Federal ID number? See a Lawyer. Insurance Agent. Accountant.
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No i havent yet. I just started so i havent really made much yet. Im just trying to wrap my mind around this for now but I usually use turbotax. Im hoping i can handle it with turbotax for a while until i can justify paying a CPA
 
ramsy said:
Bad Checks removed by Bank remain on Bank Statements "Deposits & Additions," so this record must be dealt with.

Delinquent totals are reported in IRS Form Sch-C Part V as "Bad Checks Bad Debt"

So yes, it becomes a write off to offset the bank statement record, which must be counted as income.
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Additional bank fees for bad checks are an additional expense. An entry as you mentioned would offset the original entry for payment amount. If you collect the amount later you have another entry for income amounts. The right timing could have the original income in one month/year and the expense for bad check occurring in another month/year though.
 
wc86 said:
No i havent yet. I just started so i havent really made much yet. Im just trying to wrap my mind around this for now but I usually use turbotax. Im hoping i can handle it with turbotax for a while until i can justify paying a CPA
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If you are a sole proprietor in this business you don't need a federal ID number, your SSN is your ID number. If you have it set up as a corporation or most LLC situations then the business is a separate entity and needs it's own federal ID, I believe you also need a federal ID if you pay any employees.

Using accounting software will simplify things. It will correctly report when things were paid or received - presuming you enter it with correct dates of payment or receipt. You only enter the payment or receipt once, you can't take payments or receipts for the same thing in two accounting periods. You can take partial payments or partial receipts in different accounting periods though. By that I mean separate transactions for partial amounts of a bill/invoice, not applying part of a single check to one period and part to another period.
 
The whole deal averages out over the long term. Some years you have more income, some more expenses. Be prepared for both. Don't take that high income year and buy a new truck without taking into consideration what it has done to your tax liability. Are you paying quarterly now? Do you need to? Ask a professional before it costs. Audits are not fun and handing them a box of scribbled notes makes it worse.

Pay the money. Get the help. It's deductible as a business expense.
 
ptonsparky said:
The whole deal averages out over the long term. Some years you have more income, some more expenses. Be prepared for both. Don't take that high income year and buy a new truck without taking into consideration what it has done to your tax liability. Are you paying quarterly now? Do you need to? Ask a professional before it costs. Audits are not fun and handing them a box of scribbled notes makes it worse.

Pay the money. Get the help. It's deductible as a business expense.
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You do need to purchase the truck in the same year for it to lower that year's tax liability, can't wait until now to try to lower 2023 tax liability by purchasing the truck now.

What gets people in troubles is if they did purchase the truck but couldn't really afford the truck. All they did was reduce tax liability in one year but increase their debt if they borrowed to make the purchase, now they have more money they owe and next year they still will possibly have higher tax liability, and borrow more money to purchase something to lower that tax liability. Sometimes you have items you need, other times you just need to bit the bullet and pay the taxes instead of taking on more debt.
 
ptonsparky said:
Another option, CASH only and keep the balance in your coffee can safe.
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Until someone gives you a 1099, now you have income reported to IRS. You then at least need to file schedule C with the reported amount of income to not raise any flags in the IRS system. This mostly will come up if you do work for businesses, they can deduct expenses they pay you but may need to file 1099's to do so or some file them whether they need to or not just to cover themselves both for IRS and for insurance audits as well.
 
kwired said:
the expense for bad check occurring in another month/year though.
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Returned Goods counts as income on the Profit & Loss statement, which filters Ledgers for credits & debits, after bank statements are published & reconciled.
 
kwired said:
If you are a sole proprietor in this business you don't need a federal ID number, your SSN is your ID number. If you have it set up as a corporation or most LLC situations then the business is a separate entity and needs it's own federal ID, I believe you also need a federal ID if you pay any employees.

Using accounting software will simplify things. It will correctly report when things were paid or received - presuming you enter it with correct dates of payment or receipt. You only enter the payment or receipt once, you can't take payments or receipts for the same thing in two accounting periods. You can take partial payments or partial receipts in different accounting periods though. By that I mean separate transactions for partial amounts of a bill/invoice, not applying part of a single check to one period and part to another period.
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Its better to have a federal ID even if your the sole employee. If a customer requests it to give you a 1099, then they don’t have your social security number. I’ve only had a few customers request it, but I have the fed number to give to them when they do.
 
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