I have my Adwords account where I spent my money everyday and I get my ROI as well everyday. But I was thinking to open a new additional adwords account and pre-paid like $20,000, and then setup some campaigns and use it starting on Jan 1, 2009 just to be able to writeoff this year. What do you think?
Tax Writeoff Tip?
- Thread starter klaxx
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Well, if you expect your tax rate to increase next year for any reason (higher income bracket, new tax policies), it would be stupid to write it off this year. If you do this every year, with no change in tax rate, you don't save anything. You're just moving the write-off into another year.
Goes more under Owner's Equity / Stockholders equity whatever you want to call it, in the expense column. Which then goes on your income statement!
Well first of all, if you are incorporate then your year end is not necessarily going to be December 31st.
If you are not incorporated then the accounting rules are not as sticked as you do not need to follow GAAP so you could get away with it if you do your accounting is on a cash basis.
If you are not incorporated then the accounting rules are not as sticked as you do not need to follow GAAP so you could get away with it if you do your accounting is on a cash basis.
If you ever need an invoice for the $20k as proof and try to grab it from Adwords you'll get a big fat ZERO on it. Then you'll have some explaining to do.
Someone correct me if I'm wrong as I don't have prepaid but I'm pretty sure it would not show up on the monthly invoice until you start using it up on your campaigns.
Someone correct me if I'm wrong as I don't have prepaid but I'm pretty sure it would not show up on the monthly invoice until you start using it up on your campaigns.
Yes, that is correct. He can't declare that $20,000 as an expense, it has not been used yet. Expenses (Exp) and Cash (A) need to be debited and credited as they happen. Since Expense in this situation is not coming into use, Cash cannot be credited. As I did say earlier, this does go under the matching principle, which is a GAAP principle. The OP simply cannot choose when to debit expenses.
Oops let me correct myself, so sleep deprived right now. You are correct it is counted as a prepaid expense initially, then you just credit it and DR Expenses once you start using the funds.
Cash is being credited with the prepaid expense.
DR Prepaid Expense 20k
CR Cash 20k
Then once you use say 5k
DR Expenses 5k
CR Prepaid Expense 5k
But the OP won't be able to credit Cash until he actually uses the expense. So he can't do what he intends to do in this situation.
Cash is credited... He is having an out flow of cash....
Entry:
Dec 31st -
(A)Prepaid Advertising...........$20,000
(A)Cash..........................................$20,000
Jan 1st - (assuming all is used in one day)
(EXP)Advertising Expense...........$20,000
(A)Prepaid Advertising..........................................$20.00
Problem being in this situation is the specific company he is pre-paying with, being Google. Like someone else stated, after pre-paying that $20k; if he asks Google for an invoice, it will say $0. Which won't be useful when he shows IRS his "pre-paid expenses". He needs to get proof that he pre-paid an expense. Which he will have difficulty doing so.
What you can try is floating the cash into the new year. You obviously don't have to pay taxes on accounts receivable.
But obviously you'll need to pay the taxes next year when you receive the cash. But like most CPA's say, its not so much about reducing your tax liability, as it is deferring the taxes for as long as possible.
Also consider what taxes in future years might be, very well could go up a fair bit.
But obviously you'll need to pay the taxes next year when you receive the cash. But like most CPA's say, its not so much about reducing your tax liability, as it is deferring the taxes for as long as possible.
Also consider what taxes in future years might be, very well could go up a fair bit.
Ugh, congratulations. Y'all made it way more confusing than it needs to be.
1) Learn the difference between cash vs accrual accounting.
2) Assuming you're accounting on a cash basis, YES you can do this, assuming that you pay with cash, credit or a check, but NOT a charge card. The expense can be realized when you charged it (in the case of a credit card). There are a few other caveats but I'm keeping it simple.
3) Why would you want to do this? It's called the time value of money. Having a dollar today is worth more than a dollar tomorrow (unless you're buying 3 month t-bills, lol). Defer taxes as long as possible (assuming you will be in the same tax bracket or higher in the future).
Note: I am not an accountant. You get what you pay for.
1) Learn the difference between cash vs accrual accounting.
2) Assuming you're accounting on a cash basis, YES you can do this, assuming that you pay with cash, credit or a check, but NOT a charge card. The expense can be realized when you charged it (in the case of a credit card). There are a few other caveats but I'm keeping it simple.
3) Why would you want to do this? It's called the time value of money. Having a dollar today is worth more than a dollar tomorrow (unless you're buying 3 month t-bills, lol). Defer taxes as long as possible (assuming you will be in the same tax bracket or higher in the future).
Note: I am not an accountant. You get what you pay for.
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