Posted by SharonMN on 12/27/05 3:19pm
Msg #84684

Taxes - fees earned vs. paid

OK, when I sit down to look at the tax forms, I'll figure this out, but I thought someone who's been doing this longer could give me a quick answer now. Do you put on your 2005 taxes fees for appointments in 2005 even though you didn't receive the check until 2006? Or does that fee go on your 2006 taxes?

Reply by CaliNotary on 12/27/05 3:28pm
Msg #84689

You only pay taxes on money you've received, not what you've earned. For all you know you could get stiffed on the payments that you just earned and you'd never pay taxes on money you didn't get, would you?

Reply by Calnotary on 12/27/05 3:34pm
Msg #84691

I think she/he is saying if she gets paid on a job done on 12/30/2005 but the SS pays that
signing on 1/15/2006. I think all depends of the method of accountting you do business with.

Reply by Nate_MN on 12/27/05 3:54pm
Msg #84694

It's probably safe to say that he/she is using the cash method of accounting. Just out of curiosity, do any signing agents out there use the accrual method?

Reply by PAW_Fl on 12/27/05 4:26pm
Msg #84700

If you do a search for "accrual", you will see there are many notaries, including myself, that do us the accrual method.

Reply by Tina_MA on 12/27/05 4:53pm
Msg #84703

The problem with using the "accrual" method is that you have to show due diligence before you can "write items off".

For example, XYZ company owes you for a signing on 01/30/05. It's now 12/31/05, and you have not received payment yet. Before you can write this signing off as a lost cause, you need to show that you have attempted to collect this outstanding invoice in numerous ways.

With using the "cash" method, you only pay taxes on what you've actually received, therefore there is no need to "write off" anything.

Reply by CrystalT_FL on 12/28/05 9:55am
Msg #84810

Actually, you only have to show that "reasonable steps" were taken to collect. In other words, you didnt just send one invoice and forget about it. It doesnt have to necessarily involve court etc, depending on the circumstances. As said by others, this is why you should check with your accountant if you are unsure of where your situation fits into tax law.

BTW many of us choose the accrual method as it yields a more accurate picture of business activity. When jobs are invoiced in the month they occur, rather than the month they are paid, then the corresponding expenses such as toner, paper, mileage etc. track very closely to reality. You can also see which months have the most or least activity, and plan for next year.

Many people keep their books on an accrual basis, but prepare their taxes on a cash basis. Programs like QuickBooks allow the reports to be run either way, and a lot of CPA's want to keep the tax end as simple as possible.

Reply by Dennis D Broadbooks on 12/27/05 3:58pm
Msg #84696

This is an Accounting Question...

...best answered by a CPA. The short reply to your question is determined by whether you've set your business accounting method up on a "cash basis" or "accrual basis". There'll be several accounting types who'll weigh in on this for you with their definitive response to your question. I'm not a CPA & as such my "short reply" should NOT be considered the final authority for you. I recommend you consult a professional in tax accounting in order to determine which basis is best for your situation.

Reply by cmd_NH on 12/27/05 5:27pm
Msg #84705

Re: This is an Accounting Question...

With the Cash method, income is earned when received and expenses incurred when then are paid. With the Accrual method income is earned when the job is complete and invoiced and expenses incurred when you receive the bill. You can use either method in this "service" business. If you use the accrual method for accounting purposes, it will give you more accurate information on how your business is doing. But you can also use the cash method for accounting purposes....it's your choice. A retail business for instance, must use the accrual method, because they carry so much inventory. Whichever way you use for accounting purposes, a service business usually uses the Cash method for Tax purposes. I am not a CPA, but I do have a tax service business and have doing taxes for individuals and small businesses for a while now. If you have any more questions, please email me. I would be happy to try to help.

Reply by SharonMN on 12/28/05 10:28am
Msg #84839

Thanks for the info, everyone. I'll was thinking of using the cash method of accounting, but will sit down with the tax forms and figure out which one will be most beneficial to me.