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Jesse Handel
Jesse Handel, Tax Preparer
Category: Tax
Satisfied Customers: 309
Experience:  10 years tax preparation. IRS Registered Tax Preparer.
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I am self employed, an ISO and I receive residual income from

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I am self employed, an ISO and I receive residual income from another company that I am a reseller for (not an employee of that company). Right now I file as a 1099 and I am deducting my business expenses such as supplies, phone, mileage ...etc. I just filed my income taxes and just though of this question: What if I change careers and not do any more sales, I will still have residual income from sales I done months - years ago and wont have any deductions. What suggestion(s) do you have for me?
Hello and thank you for coming to our website. We appreciate the opportunity to help you with your questions. During the time that you are working in your current job, you will have deductions while you are making sales. If you deduct the expenses as they occur and add income as you receive it, the income and expenses will be the same regardless of the timing of the income and expenses. If you make the sales in 2012, then you will deduct all of the employment-related expenses on your Schedule C in 2012; but if you don't get paid until 2013, then you will deduct the income on your 2013 Schedule C. You will still get credit for the expenses in 2012, you will just have lower net earnings in 2012 and higher net earnings in 2013. You don't actually lose credit for any expenses; but you have to expect higher taxes in 2013 since the expenses have already been deducted. If you have expenses in January 2013 but don't get paid until May 2013, the timing won't affect your Schedule C. You just have to keep track of the expenses you have while you're making the sales and then the income will come in later in the year.

If I have misunderstood your question, just let me know and I will be happy to continue to help you with this question until you are satisfied.
Customer: replied 4 years ago.

I think I need to clarify this a bit. If I made a sale in january, I would incur costs like travel gas food tolls...etc just that one time. My first residual from that sale will come in feb and also in march, april and will go on and on until the buyer ceases to continue the service i sold him. It could be a few months or a few years i would be recieving residual sales I did years ago. So lets say I retire. I will get residual income from all the sales I have done from years past without incurring any new expenses. Now I have just about the same income (residual or commision) and zero expense. I wont have the deductions thus the amount I pay in taxes would be higher. What can I do?

Unfortunately, there isn't anything that you can do about this situation. Even if you changed from a cash accounting method to an accrual accounting method, it wouldn't affect this situation of the income coming long after the expenses. You have to claim expenses when the expenses are paid and you can't claim income until it is paid. All that you can do is claim the expenses at the time you incur them and save money to pay the taxes on the income in future years when you don't have expenses. You can reduce your income in future years by putting money into an IRA or SEP retirement plan and that will defer the taxes on the income you put away until you take the money out of the retirement plan after you reach age 59.5. But, there isn't any way that you can wait to claim expenses until you receive the income. I'm sorry about this situation, but that is the way the rules work. If there is any other help that I can give you, I'll be happy to help you further.
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