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Richard
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 46290
Experience:  29 years of experience as a tax, real estate, and business attorney.
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I formed a sole proprietorship LLC in 2012 and have reached

Customer Question

I formed a sole proprietorship LLC in 2012 and have reached the end of the year with a net profit. These funds will be needed to operate in 2013 and deductible expenses in Jan/Feb. Can I pass this income to 2013 without paying taxes on it in 2012? If so, how?
Submitted: 1 year ago.
Category: Tax
Expert:  Richard replied 1 year ago.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.


Good morning. Unfortunately, as a sole proprietorship, you are a cash basis taxpayer. As a result, you will have to report the operations of your sole proprietorship based on your cash received for 2012 and your deductible expenses actually paid in 2012. The IRS won't allow you to take expenses paid in 2013 and apply them against 2012 income.



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Customer: replied 1 year ago.

Looking forward, then, is there a better business formation to minimize taxes? It seems silly that Dec/Jan forms a kind of magic point in the road where I am unable to carry operating income forward.

Expert:  Richard replied 1 year ago.
Thanks for following up. Going forward, you would want to pay the January and February expenses in December. Or, if there is going to be a loss, defer the payment of the expenses until the following year.
Customer: replied 1 year ago.

Sorry, I wasn't clear. Is there a better formation of my business that would allow me to carry income forward into a new year for operating expenses? I'm looking for the best setup from a tax perspective.

Expert:  Richard replied 1 year ago.
Thanks for the clarification. You could structure your business as an LLC and then elect the accrual method of accounting. Under the accrual method of accounting, an LLC recognizes income when it is earned whether or not it is actually payable, and generally recognizes deductions when they become payable whether or not they are actually paid.
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 46290
Experience: 29 years of experience as a tax, real estate, and business attorney.
Richard and 4 other Tax Specialists are ready to help you
Expert:  Richard replied 1 year ago.
Thanks so much for the positive rating and the bonus! I appreciate your generosity and the opportunity to serve you! If I can be of assistance to you in the future, just look me up and I will be happy to help!
Customer: replied 1 year ago.


I think I signed up for the ongoing deal, so I think I can continue to ask questions. Let me know if not.


 


My understanding from your response is that I can count expenses in Jan/Feb on my 2012 taxes. (Perhaps I misunderstood this.) This should work fine since I'm just getting started and am not dealing with a lot of $$$ right now. However, I need to know how to handle this from an accounting and tax reporting standpoint. I use Quicken Business for record keeping and so far have been keeping a simple ledger, breaking different income and expense out using categories. Obviously, anything paid out in Jan/Feb will show for 2013. Any ideas?

Expert:  Richard replied 1 year ago.
No worries. You can only count in expenses for Jan/Feb for 2012 currently if you actually pay them in 2012. As a cash basis taxpayer, the key is when you pay them. I'm sorry if I was unclear earlier. Going forward, if you form an LLC and elect the accrual basis of accounting, then if they are due in 2012, you can deduct them in 2012 even though you may pay them later. I would recommend you keep your books using QuickBooks..it's a pretty simple double-entry accounting system that works well for small businesses.

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