Page 1 of 2 12 LastLast
Results 1 to 25 of 26
  1. #1
    Banned
    Join Date
    February 7th, 2006
    Posts
    118
    cash method or accrual method of accounting?
    It's tax time again. What method of accounting do you use throughout the year, cash or accrual?

    For those who do not know, cash accounting is when you record your income when you actually recieve the money. With the accrual method, you record your income when it is earned, but not necessarily recieved.

    It seems like the cash method would be better because if you were to earn much money in December, but never got paid, you would not have to pay tax on it. With the accrual method you would have to pay tax on this money and if you ended up not recieving it you would have to claim it as a loss on next year's tax return. It just seems like the cash method makes things easier.

  2. #2
    ABW Ambassador affninja's Avatar
    Join Date
    December 11th, 2005
    Location
    Nor-Cal
    Posts
    651
    You're right nobugs, using the cash method can reduce your 2008 tax liability, especially if you had a big 4th quarter.

    Advertising expenses are higher, and the associated income from that advertising won't get paid until Jan or Feb, reducing your 2008 taxable income.

  3. #3
    ABW Ambassador
    Join Date
    January 18th, 2005
    Location
    Nunya, Business
    Posts
    23,684
    I think I was doing it wrong at the beginning. But with most, I get the 1099, over $600, so I give that to my accountant and that's what gets reported as income. But I still report the under $600, usually indy's even tho I might not have gotten paid yet, so that's the part I'm still doing wrong.

  4. #4
    Moderator MichaelColey's Avatar
    Join Date
    January 18th, 2005
    Location
    Mansfield, TX
    Posts
    16,232
    No, you're doing it right. You owe taxes on all of your earnings, not just the earnings you receive 1099s for.
    Michael Coley
    Amazing-Bargains.com
     Affiliate Tips | Merchant Best Practices | Affiliate Friendly? | Couponing | CPA Networks? | ABW Tips | Activating Affiliates
    "Education is the most powerful weapon which you can use to change the world." Nelson Mandela

  5. #5
    ABW Ambassador
    Join Date
    January 18th, 2005
    Location
    Nunya, Business
    Posts
    23,684
    I report it all, under $600 as well but what about under $600 earned vs. under $600 earned and actually received a check for. For example if I earn $5 from Allposters for the year, I've been reporting that, even tho I actually haven't been paid yet. I think what the IRS considers taxable is the income actually received.

  6. #6
    ABW Ambassador isellstuff's Avatar
    Join Date
    November 9th, 2005
    Location
    Virginia
    Posts
    1,659
    Yup, I use the cash method of accounting and only report when the money arrives via check or direct deposit. It saves me a ton of money for year end taxes because I end up spending so much on PPC in December for revenue that doesn't arrive until January-March.

    Another way to look at it... Why report revenue from a source that may go bankrupt before they pay you
    Merchants, any data you provide to Google Shopping should also be in your affiliate network datafeed. More data means more sales!

  7. #7
    Moderator MichaelColey's Avatar
    Join Date
    January 18th, 2005
    Location
    Mansfield, TX
    Posts
    16,232
    Sorry, I misunderstood what you were saying, Trust.

    Yes, if you're doing cash account, you should only include what you actually receive. The 1099s (should) reflect what you've received (not what you earned).

    If you're doing accrual accounting, the 1099s are fairly meaningless. In that case, you report what you earned (while the 1099s show what you received), an allowance for doubtful debts, etc.

    Cash basis is far easier and works out much better for those of us who earn a lot of our money in Q4 but don't receive the bulk of it until Q1. It puts the taxes for those earnings off an extra year.

    There are restrictions on changing the accounting method, so if you started out one way make sure to check with your accountant before changing it.
    Michael Coley
    Amazing-Bargains.com
     Affiliate Tips | Merchant Best Practices | Affiliate Friendly? | Couponing | CPA Networks? | ABW Tips | Activating Affiliates
    "Education is the most powerful weapon which you can use to change the world." Nelson Mandela

  8. #8
    Newbie
    Join Date
    January 17th, 2005
    Posts
    1,537
    If I remember right, I don't think you can use the accrual set up unless you are a corporation. As an individual, you are constrained by the actual physical year and that ends of December 31st. As a corporation you can designate your end of the year date ... most pick September 30th. But you can pick any end month. If you are a sub-chapter S corp, that might make a difference.

    If you are not on the accrual system ... you only need to report what you receive in the tax year you receive it. Ditto expenses, you can only deduct what you actually spent for that year ... If you make a huge taxable profit, it's bad bookeeping.

  9. #9
    ABW Ambassador jodyq's Avatar
    Join Date
    August 28th, 2008
    Location
    Melbourne, Florida
    Posts
    660
    Accrual Here. Best be safe. I would rather over pay taxes then to have a suprise 3 years down.
    I usually over pay fed taxes and underpay state and COunty.... I don't know how but it happens every year :S
    Wear Short Sleeves!!! Support the right to bare arms!

  10. #10
    Moderator MichaelColey's Avatar
    Join Date
    January 18th, 2005
    Location
    Mansfield, TX
    Posts
    16,232
    You can read the Schedule C instructions from the IRS (see the part about Line F) for more details. Sole proprietors "can use the cash method, accrual method, or any other method permitted by the Internal Revenue Code".

    Michael Coley
    Amazing-Bargains.com
     Affiliate Tips | Merchant Best Practices | Affiliate Friendly? | Couponing | CPA Networks? | ABW Tips | Activating Affiliates
    "Education is the most powerful weapon which you can use to change the world." Nelson Mandela

  11. #11
    ABW Ambassador CathyM's Avatar
    Join Date
    May 30th, 2006
    Location
    Torrance, CA
    Posts
    893
    For any business with 1099's, I think it would be much easier to use the cash method than accrual. If the 1099's don't match what is reported by the accrual method, it will likely trigger a letter and possible audit from the IRS.

  12. #12
    .
    Join Date
    January 18th, 2005
    Posts
    2,973
    I don't think it makes sense for 99% of affiliates to use any accounting method other than "cash." It's simple and straightforward, and avoids problems that arise if you report "accrued earnings" that are never actually paid.

    There certainly are some tax-reporting problems that can still arise, even if you use the "cash" method -- for example, a merchant might mail a check to you on December 30 or 31 and include that amount in the 1099 for 2008 -- but you should NOT include it as 2008 income if it was not received until after January 1, 2009. This can require some special handling when filing your tax return, to avoid an "automatic audit" due to a mismatch between the 1099 and your reported income. (The solution: include the full amount of the 1099 along with an adjustment for the amount not actually received in 2008; you'll carry that adjustment forward as income for 2009 -- something that Quicken and TurboTax won't make very easy.) Of course, check-in-the-mail problems are much less frequent with direct-deposit.

  13. #13
    Moderator MichaelColey's Avatar
    Join Date
    January 18th, 2005
    Location
    Mansfield, TX
    Posts
    16,232
    If you're on direct deposit (pretty much every network offers that now), there should be no lag (or at least a far shorter lag) between the reported payment date and when you actually receive it. I can't remember the last time I had a merchant report something in a 1099 that I didn't receive in the same year.
    Michael Coley
    Amazing-Bargains.com
     Affiliate Tips | Merchant Best Practices | Affiliate Friendly? | Couponing | CPA Networks? | ABW Tips | Activating Affiliates
    "Education is the most powerful weapon which you can use to change the world." Nelson Mandela

  14. #14
    Moderator
    Join Date
    October 16th, 2007
    Location
    Neenah, WI
    Posts
    682
    Taxes? You guys pay taxes? Huh...

    I had a friend who worked a 9 to 5 and didn't pay taxes for 7 years before the IRS contacted him!!!!!(lot's of excessive punctuation here)!!!!!

    Last year my taxes had an error/typo on one line, but the bottom line was correct. The wife just blooped when she copied over to a new form. She mailed it early Feb, we got the letter mid July. They made it sound like we were criminals and they could come in and take everything, home - cars - savings - goldfish - and throw us in prison. What a bunch of (insert demeaning bad words)!

    We use the CASH method

  15. #15
    ABW Ambassador jodyq's Avatar
    Join Date
    August 28th, 2008
    Location
    Melbourne, Florida
    Posts
    660
    You know no matter which way you look at that glass, it has water in it. Cash or accrual..... again I think it is in my best interest to use the accrual method only because I would rather overpay than underpay and the IRS changes its terms every other day lol...... Even when I had a job I always claimed 0 at the end of the year The feds would owe me and I would still owe my state... go figure...but now that I am on my own, over pay and work on accrual......for now.....
    Wear Short Sleeves!!! Support the right to bare arms!

  16. #16
    Banned
    Join Date
    February 7th, 2006
    Posts
    118
    Quote Originally Posted by calebtheredwood
    Taxes? You guys pay taxes? Huh...

    I had a friend who worked a 9 to 5 and didn't pay taxes for 7 years before the IRS contacted him!!!!!(lot's of excessive punctuation here)!!!!!

    Last year my taxes had an error/typo on one line, but the bottom line was correct. The wife just blooped when she copied over to a new form. She mailed it early Feb, we got the letter mid July. They made it sound like we were criminals and they could come in and take everything, home - cars - savings - goldfish - and throw us in prison. What a bunch of (insert demeaning bad words)!

    We use the CASH method
    Did you you do your own taxes? Could this be why the IRS came down on you so hard?

    I think that if you have an accountant do your taxes not only would you help prevent problems, but you might not get in as much trouble if somethig is amiss.

    If there is an error on your tax return, will the IRS give you a chance to correct it or will they stongly penalize you?

  17. #17
    Newbie
    Join Date
    January 17th, 2005
    Posts
    1,537
    FYI ... there is a thing called U.S. TAX COURT. If the IRS is giving a bunch of unreasonable flack ... just bring it up in the discussion and watch all the color drain from their face.

    ANY Taxpayer can file a proceeding in U.S. Tax Court for a fee. Used to be $60. Might be higher now. Since most tax regulations are interpretive, the final arbitrator is the U.S. Tax Court. It was a simple one or two page form.

    Once you file a case, the IRS cannot talk to you, harass you, do anything.
    Your case will be scheduled ... and since the court is overdosed in cases, it may be a year or more before it gets heard.

    Now, you can then hire a tax attorney to represent you or not. About a month before the case is to be heard, the IRS will contact you about having a settlement conference. You bring in you ammo, they bring in their ammo
    and you make a deal. They DO NOT want to go before the judge unless there is ZERO chance they can't lose.

    Tax court judges have a BIG TIME unwritten rule. You waste their time with nitpicking ticky, tacky, unreasonable stuff, you lose.

    Plus, you or your lawyer can subpeona any and all IRS people who have dealt with your case plus ALL their documents. Since this people and document stuff costs the IRS money and the Tax Court is a separate entity. If they lose, they lose not only the taxpayer money they would have collected but the cost of going to court.

    If you FOR SURE owe them money ... make a deal. They get brownie points for any money they collect. And when you do make deal make them put it in writing that you are FREE & CLEAR of any other monies owed them from any back taxes or penalties from the day you make the deal.

    My tax attorney gave me this advice: "Keep business income and personal income separate." (i.e put the business in a LLC or corporation.) Don't waste your time trying to save on personal taxes. Take the standard deductions and your mortage interest write off and pay the tax you owe. Saves everyone time and money in the long run."

  18. #18
    Banned
    Join Date
    February 7th, 2006
    Posts
    118
    FYI ... there is a thing called U.S. TAX COURT. If the IRS is giving a bunch of unreasonable flack ... just bring it up in the discussion and watch all the color drain from their face.

    ANY Taxpayer can file a proceeding in U.S. Tax Court for a fee. Used to be $60. Might be higher now. Since most tax regulations are interpretive, the final arbitrator is the U.S. Tax Court. It was a simple one or two page form.

    Once you file a case, the IRS cannot talk to you, harass you, do anything.
    Your case will be scheduled ... and since the court is overdosed in cases, it may be a year or more before it gets heard.

    Now, you can then hire a tax attorney to represent you or not. About a month before the case is to be heard, the IRS will contact you about having a settlement conference. You bring in you ammo, they bring in their ammo
    and you make a deal. They DO NOT want to go before the judge unless there is ZERO chance they can't lose.

    Tax court judges have a BIG TIME unwritten rule. You waste their time with nitpicking ticky, tacky, unreasonable stuff, you lose.

    Plus, you or your lawyer can subpeona any and all IRS people who have dealt with your case plus ALL their documents. Since this people and document stuff costs the IRS money and the Tax Court is a separate entity. If they lose, they lose not only the taxpayer money they would have collected but the cost of going to court.

    If you FOR SURE owe them money ... make a deal. They get brownie points for any money they collect. And when you do make deal make them put it in writing that you are FREE & CLEAR of any other monies owed them from any back taxes or penalties from the day you make the deal.

    My tax attorney gave me this advice: "Keep business income and personal income separate." (i.e put the business in a LLC or corporation.) Don't waste your time trying to save on personal taxes. Take the standard deductions and your mortage interest write off and pay the tax you owe. Saves everyone time and money in the long run."
    Yesterday 12:18 PM
    Great advice, Net4biz.

    If you had an accountant do your taxes, would'nt the IRS go after your accountant if there was an error since it was he who prepared the documents (this is assuming that all the information you provided was correct)?

    Also, I absolutly agree with keeping the business and personal income separate. In order to accomplish this, however, you do not necessarily have to have an LLC or a corporation, although it is a good idea.

  19. #19
    Newbie
    Join Date
    January 17th, 2005
    Posts
    1,537
    The accountant is just the messenger ... you are responsible for any errors.

    However, if the accountant was really at fault, you can sue him or her to recover any damages.

    But the battle is between you and the IRS ... you sign the tax form and your it.

  20. #20
    Banned
    Join Date
    February 7th, 2006
    Posts
    118
    Quote Originally Posted by net4biz
    The accountant is just the messenger ... you are responsible for any errors.

    However, if the accountant was really at fault, you can sue him or her to recover any damages.

    But the battle is between you and the IRS ... you sign the tax form and your it.
    So, if your accountant messes up, you have to take the loss and then try to get the money back from him. Some-how this does not surprise me. One should be very picky when choosing an accountant. If you give your accountant true and accurate figures, than you should be in a good position to get your money back from any fines due to an error.

    Thank for the response.

  21. #21
    Affiliate Manager Howard Gottlieb's Avatar
    Join Date
    December 30th, 2006
    Location
    Mansfield, Texas
    Posts
    1,561
    The net effect is the same ultimately.

    We choose to report on a cash basis though to answer your question.
    I would rather live my life as if there is a God and die
    to find out there isn't, than live my life as if there
    isn't and die to find out there is.

  22. #22
    Lite On The Do, Heavy On The Nuts Donuts's Avatar
    Join Date
    January 18th, 2005
    Location
    Winter Park, FL
    Posts
    6,930
    i see lots of overpay versus underpay discussions going on here, you can overpay and underpay under either method depending on the intentional (and otherwise) timing of receipts and outlays... the choice between methods is more about the nature of your business and how it's operations can be fairly represented.

    if you carry inventory, offer payment terms (like net 60) to people who pay you, buy materials and build products, sell amortized items (like monthly subscriptions) or your business has significant returns (that affect your finances), then it's very likely that you'll need to use the accural basis method to portray an accurate picture of your businesses profit / loss for certain time frames, like the tax calendar. merchants, drop shippers, suppliers, OEMs and others normally fall into this category.

    the cash basis method is simpler to maintain and report, but can only portray the financial condition of some types of enterprises. the vast majority of affiliates would fall into this category.

    the differences between the cash basis and accural basis methods is explained very well at wiki:
    http://en.wikipedia.org/wiki/Accounting_methods

  23. #23
    Banned
    Join Date
    February 7th, 2006
    Posts
    118
    That is very true, Donuts.

    The accrual basis is the best method to use if you want an accurate picture of how your business is doing. The cash method, however, is much more simple and is the best method to use for most affiliates. I believe that if you have a business that carries an inventory, such as a retail store, you are required to use the accrual method. For that type of business you would want to the accrual method anyway.

  24. #24
    Outsourced Program Manager TrishaLyn's Avatar
    Join Date
    February 24th, 2008
    Location
    San Leandro, CA
    Posts
    1,049
    Do you guys that make the better part of your living from affiliate marketing find that doing your own taxes is easier since you understand your business, or do you seek out the help of an accountant to tax preparation service like H&R Block to do it because of the inherent complications?

  25. #25
    Beachy Bill's Avatar
    Join Date
    November 20th, 2005
    Posts
    8,266
    Quote Originally Posted by TrishaLyn
    Do you guys that make the better part of your living from affiliate marketing find that doing your own taxes is easier since you understand your business, or do you seek out the help of an accountant to tax preparation service like H&R Block to do it because of the inherent complications?
    For several years I had my accountant (CPA) do all of the tax prep stuff - based on records I gave him and a lot of discussion about how everything worked.

    Last year he set me up with QuickBooks online (so I can directly and automatically extract $$ info from my bank and business credit card) and Turbo Tax. So I was able to do it all myself - with him "looking over my shoulder" - which gave me a better picture of what was going on.

    Consequently I am now in the process of changing the business structure somewhat. That is also partly because I am anticipating more states to do what New York did with the sales tax debacle in 2008.
    Bill / Marketing Blog @ 12PM - Current project: Resurrecting my "baby" at South Baltimore..
    Cute Personal Checks and Business Checks
    If you are too busy to laugh you are too busy.

+ Reply to Thread
Page 1 of 2 12 LastLast

Similar Threads

  1. Payment method
    By thebestretail.com in forum BettyMills
    Replies: 1
    Last Post: September 20th, 2012, 11:23 PM
  2. The conduit method?
    By randomtexture in forum Midnight Cafe'
    Replies: 0
    Last Post: August 19th, 2009, 12:15 AM
  3. Method of Marketing
    By roozak in forum Commission Junction - CJ
    Replies: 10
    Last Post: November 19th, 2007, 05:43 PM
  4. Which linking method?
    By bpal in forum ShareASale - SAS
    Replies: 4
    Last Post: March 5th, 2004, 12:03 AM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •