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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4545
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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My part-time online business is showing 26K net profit for

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My part-time online business is showing 26K net profit for 2016 FY ending in Dec 2016. I am working on extending that business and will require me to pay for inventory and new business cost in January 2017. What is the best way to avoid paying tax on 26K profits?
Customer: replied 11 months ago.
Buying inventory upfront before end of 2016 is not a choice

Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

Though this is little open ended question and broad in nature, let me try and put you in some direction.

You have a month and a half to go before 2016 ends. Having said this, to begin with, you will have to focus on the "expenses" that you can claim as deduction. Make sure, that for your current part time online business, you have ACCOUNTED FOR and DEDUCTED all of your operating expenses of any nature. See that none of them are left out. Further to this, try and make as much revenue expenses (operational expenses) that you can make for your requirements post 2016, as all these would be deductible.

Note that purchasing inventories will not solve your issue as you are creating "current assets" and not incurring any operational expenses. Operating expenses are the area you need to concentrate on.

This will reduce your taxable net profit and therefore your taxes.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Rakhi Vasavada and other Finance Specialists are ready to help you
Customer: replied 10 months ago.
Thanks for response. I have been travelling so could not respond on time. What kind of operational expense I could deduct?I have around 25K in Ad Expense and around 15K in COGS planned in 2017 first quarter. Can I deduct these from profits before paying tax? What should I tell my CPA?

Dear Friend,

YES, Ad expense is a revenue expense and you can certainly deduct them as you say.

COGS that is planned for 2017 cannot be deducted now. Anything actually incurred - spent -- before end of 2016 will remain deductible.

Just tell your CPA that you are trying to claim as much deduction as you can therefore concentrating on all operating expenses. Ask him to claim as much expenses (operational and of revenue nature; not capital) to be claimed.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Customer: replied 10 months ago.
Thanks for update. can I just deduct ad expense for first quarter of 2017 or whole 2017?

Dear Friend,

Entire Ad expense which has been actually incurred and spent until the end of 2016.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Customer: replied 10 months ago.
These are all things I already know. I know all expenses done until end of 2016 can be deducted. I haven't gotten any new value or answers from your service.but you said earlier this "Further to this, try and make as much revenue expenses (operational expenses) that you can make for your requirements post 2016". Now you are contradicting yourself saying operational expense of 2017 cannot be deducted.When I asked question, it had 2.5 months left not 1.5 months before end of year, as you mentioned.

Dear Friend,

No, there is little misunderstanding. Let me go back to your previous question that you asked couple of minutes back today. I am not making self-contradicting statements. Just that I failed to convey myself clearly. I apologize for this.

You asked "...can I just deduct ad expense for first quarter of 2017 or whole 2017?.."

My answer to this is -- it does not matter that you are making expense for the first quarter of 2017 or the whole of 2017. I mean is that so long you have "made' the expense, you can go on to deduct irrespective of the fact that it is for just the first quarter of 2017 or for all of 2017 since it is a revenue expense (not capital) and has been incurred.

I hope this clarifies.

Warm Regards,

Customer: replied 10 months ago.
I already knew the fact that if I made a expense already, i can deduct it. I want to know what else I can deduct. Your answers does not help me know more to solve the issue. If you go back to question, I am trying to find out how to pay for inventory and new business cost in 2017

Dear Friend,

Let me try and issue one thing -- New business costs -- . I am sorry but I will go back to the same thing. You can make as much revenue expenses you can make. This can include prepaying certain utilities, making ad expenses, include COGS as well, etc.

One additional thing that I can think of is -- yes -- you can make some capital expense as well. You can consider buying any asset that you may need in future and claim depreciation on it. This is the most often used method to minimize current taxes.

Beyond this, simply adding up inventories stock will not help directly as you are just buying current assets. However, if you feel that if you buy inventories now and then if the prices decline by december end, you can claim the difference of valuation of inventories but I would not advise that as the risk reward ratio is not favorable.

Hope this helps. Please feel free to continue the conversation if you require.

Warm Regards,