Discussion:Deferring revenue on sale of equipment
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Discussion Forum Index --> Basic Tax Questions --> Deferring revenue on sale of equipment
Discussion Forum Index --> Tax Questions --> Deferring revenue on sale of equipment
| 18 August 2009 | |
| I have an issue with a quickbooks consultant and would like to receive a second opinion.
Client sells equipment and is a cash basis taxpayer. Client receives a cash deposit (40%) when contract is signed commissions are immediately paid out of this. Contract specifies required deposit is non-refundable. Sometimes customer will pay more than required deposit which is sometimes refunded when deal is cancelled but never the required deposit. Equipment is not held in inventory, it is ordered after deposit is received. In my opinion deposit is constructive receipt and also the monies that are possibly refundable and included in income. I have included deposits received in income in the year received even though equipment was not delivered. Quickbooks consultant is citing the following: Rev. Proc. 2004-34 can be found at : http://www.irs.gov/irb/2004-22_IRB/ar16.html#d0e2084 My response has been that the scope here is accrual basis not applicable hoping it would go away. Now it seems the quickbooks consultant is advocating accrual basis accounting would result in smaller tax liability, I disagree. Mark up is 120%. Client orders equipment after the deposit is received. Client issues full invoice when order is received and deposit is then paid. Commissions are paid when the deposit is received and deducted in year paid. Even if the alternative method of reporting with the accrual basis is applied, commissions paid and expenses directly related to the sale will then also be deferred and not be deductible if income relating to those expenses are deferred is that correct - matching convention. | |
| 18 August 2009 | |
| Rev Proc 2004-34 deals with advanced payments. Not sure your cash basis taxpayer can even have an advanced payment to defer under 2004-34 (payment received before the income is accrued). That being said, you seem to wonder about electing the accrual method if it provides a smaller tax liability. Both income and expenses apply the all events test in determining their timing. Since Rev Proc 2004-34 only concerns the deferral of advanced payments, it shouldn't affect the deductibility of expenses that meet the all events test. This could result in a miss-match and lower taxable income. | |
