Small Business Accountant Needed

[axshon]

Looks like I'll be getting a payment from a side gig before the end of the year and I'd like to talk to an accountant about how to shield some of the funds for materials purchases next year. Not sure it's even possible for a sole proprietorship but looking for paid professional advice.

 

[BartExp]

Looks like I'll be getting a payment from a side gig before the end of the year and I'd like to talk to an accountant about how to shield some of the funds for materials purchases next year. Not sure it's even possible for a sole proprietorship but looking for paid professional advice.

Can you have the payment delayed until January? Alternatively, can you purchase the materials this year?

 

[axshon]

Can you have the payment delayed until January? Alternatively, can you purchase the materials this year?

Would love to delay but they want to get the money out of their account in December as much as I want to keep it out of mine until January 1.

Regarding materials, it's a tough thing for me as I'm moving from 3d printed gizmos into machined gizmos. I'm not sure how much I will need or whether I need aluminum, steel, or delrin (or whatever expensive plastic is these days). At the end of the day, I think I'll just be sucking it up and paying taxes on a large part of it. I wish there was a place I could open an account with and just put money now so I could use it next year. Not even sure that's tax-legal.

 

[6-Pack]

SEP IRA contributions don't count toward 401k or traditional/Roth IRA contributions, and you can contribute approximately 20% if your self-employment income to a SEP IRA. The contributions to your SEP IRA are deductible, which is where the benefit comes in. However, you'll have to pay income tax upon distribution.

This doesn't really help "shield income for materials next year" but it can lower your tax burden this year.

 

[fabsroman]

Unpaid professional advice.

You can buy up to one year's worth of materials and expense it in the year you buy it. You can pre-pay expenses up to a year in advance and expense it in the year you pre-pay. This is assuming that you are a cash basis taxpayer. If you are an accrual basis taxpayer, of which I do not have a single sole proprietor client using accrual basis, then things get more complicated.

You can also buy some equipment and expense it entirely in the year you purchase it. If the equipment is less than $2,000, I just expense it for clients. Once it is above $2,000, then it goes on a depreciation schedule and I still take section 179 to expense it in it entirety, assuming there is adequate income, in the year of purchase. There are section 179 limitations, but I am not going to get into it in this post.

Whether contributing to a retirement fund makes sense for you depends on whether you already have a retirement account at your day job, etc. Even then, it is usually only a portion of your income and you do not avoid FICA/Medicare on that income. Depends where you are in the FICA spectrum with your day job.

 

[fabsroman]

Would love to delay but they want to get the money out of their account in December as much as I want to keep it out of mine until January 1.

Regarding materials, it's a tough thing for me as I'm moving from 3d printed gizmos into machined gizmos. I'm not sure how much I will need or whether I need aluminum, steel, or delrin (or whatever expensive plastic is these days). At the end of the day, I think I'll just be sucking it up and paying taxes on a large part of it. I wish there was a place I could open an account with and just put money now so I could use it next year. Not even sure that's tax-legal.

Have them mail the check on December 31st. They can then expense it in 2022. You receive it after December 31st in 2023 and it is income for you in 2023. Some of my long time clients do it this way so I can kick the can down the road a bit.

 

[silver78]

Fab - Won't he get a 1099 for 2022 from the customer showing it as 2022 income? Also the OP mentions materials purchase as an offsetting expense. Why not just buy the materials this year?

 

[axshon]

Thanks everyone. I was looking for a legal means of deferring some of the funds till next year but it's just not going to happen. I'll have to take the tax hit on whatever is left after I buy up the equipment I still need. Can't outrun the tax man and certainly in this environment I want to stay right side up in case of audit.

 

[fabsroman]

Fab - Won't he get a 1099 for 2022 from the customer showing it as 2022 income? Also the OP mentions materials purchase as an offsetting expense. Why not just buy the materials this year?

He'll get a 1099-NEC for 2022, but he can add a note to the tax return that the money was not received in 2022 and that it will be included in his 2023 income.

Regarding supplies, I thought I said exactly what you are saying. He can buy up to one year's worth of supplies on December 31, 2022, and expense them in 2022. Between the equipment and a year's worth of supplies, he should be able to put a dent in that 1099-NEC income even if he receives the income in 2022. I would make sure I receive the check/direct deposit in 2022 before I start spending a pile of money on equipment/supplies.

My best friend, also a client of mine, bought a Silverado on December 31st. He drove up to see me for some tax planning. We wrote off the entire pickup in that tax year since it was used 100% for business in that tax year (i.e., the last day of the tax year).

All kinds of planning can be done before year end. Some planning can be done by April 15th, but it is much more limited once the tax year closes.