How to Defer Income or Accelerate Expenses

If you are a small business owner and operate on the cash method of accounting for tax purposes, you may be able to strategically defer income or accelerate expenses to lower your current year’s tax liability. Under the cash method of accounting for tax, a business typically recognizes income when cash is received or recognizes expenses when actually paid. This provides you with the opportunity to defer income or accelerate expenses.

For instance, if it is close to your tax year end and you decide to hold off billing and receiving payment from a customer, you could shift that income into the next tax year. You may want to do this if you will be in a lower tax bracket in the next tax year. Similarly, if it is close to year end, you could pay your vendors this year if you want to accelerate expense deductions to lower your taxable income.

If you operate on the accrual method of accounting, you may be able to defer recognizing taxable income for certain advanced payments, to the extent they are reported as deferred revenue on an applicable financial statement. Whether it makes sense for a business to defer income or accelerate expenses is typically made on a case-by-case basis for each business.