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Income & Expense Timing

What is Income & Expense Timing? 

Timing of Income “Recognition” and Expense “Incurrence” is the tax and accounting strategy used to manage the time in which you receive the rights and ownership of your assets and the time in which you take obligations to your liabilities. Typically, a business accounting strategy, this technique allows companies to manage the date that they will earn their revenue and the date that they will pay expenses on expected or known liabilities. This strategy needs to be addressed by your CPA or tax professional at least annually for most businesses.  

What are the advantages of Income & Expense Timing?

Depending on the businesses’ accounting method (i.e. Cash, GAAP, etc.), companies are required to recognize revenue and record expenses in certain manners. However, regardless of their accounting method, businesses can project expected or known revenue streams or expense payments to determine when they can report the activity to their financial statements. This projection allows businesses to optimize tax positions, thereby creating opportunities to reduce taxable income.

Who qualifies & why should you adopt?

Any business owner should consider executing this strategy. This specific timing of income and expense recognition comes into play towards the end of the fiscal year, as companies with expected or known revenue streams can potentially delay those activities (while abiding to the rules of accounting methods, contracts, regulations, etc.). This allows companies to prevent taxable income from rising. Additionally, businesses operating on Cash basis of accounting can pay, at the year-end, for expected amounts of expenses to be incurred in the next year. By doing this, companies reduce taxable income in the current year.

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