Controlling the Due Date for Taxes

Although your former grade school teachers may not want to hear it, putting something off can sometimes be a good idea.

Putting it another way, "justice delayed" may be "justice denied," but taxes delayed can be taxes minimized!

The idea that we're trying to convey is that it's usually worthwhile to delay the due date for your tax liability, if you can do so legally. This is true even if you figure that you'll be in the same tax bracket in all relevant years. What you gain is the use of your money for a longer period of time. The advantage may be as little as passbook earnings on the money, or as much as the growth resulting from a needed investment of money or equipment into your business.

Now, you generally don't have the option of actually delaying payment of the income tax you owe. It's possible to obtain an extension to pay tax if you can demonstrate to the IRS's satisfaction that you could not pay on time without undue hardship. However, this is not something that you'll want to do unless absolutely necessary, since even if you can get the extension you will owe interest on the unpaid taxes, beginning on the original due date.

What we're really talking about is the fact that it's often possible to delay your taxes indirectly, by taking actions that delay the time when particular income items must be reported on your return. Your primary strategy will usually be to postpone receipt of income until the next year, and accelerate payment of expenses into your current tax year. (This will be much easier to do if you use the cash method of accounting.) In this way you can delay your tax liability to the next quarter, or even the next tax year.

Although delaying the receipt of some income means that you will lose the use of that money for a short time, you may gain the use of the saved tax payment on that income for a much longer time period (that is, up to one year).

Postponing income, accelerating deductions. A few specific how-to ideas are listed below. Bear in mind, however, that many of these strategies are much easier to accomplish if you use the cash method of accounting.

But what if you use the accrual method? Although strategies aimed at changing the year in which income and deductions will be accounted for are usually more difficult to accomplish using the accrual method, this does not mean that they cannot be done. You'll need to learn how to navigate through the accrual method accounting rules in order to reach the tax result that you want:

Accelerating income, postponing deductions. What if, after looking into your tax situation, you have decided that you should take steps to maximize the amount of income that will be taxed in your present tax year, because you'll probably be in a higher bracket next year? You can accomplish your goal by accelerating income, and postponing expenses into the following year. How do you go about doing this? In most cases, you can simply do the opposite of the suggestions listed above. For example, instead of delaying your billings, send out all of your bills early, and do everything that you can to collect them before year's end.

Again, any strategies aimed at changing the year in which items of income and deduction will be accounted for will be much easier to accomplish if you use the cash method of accounting.