Deferred revenue and the tax return

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  • #166835
    CPA Dex
    Member

    I understand how deferring revenue on your books works, but I’ve never quite understood how it effects the tax return. I know if you receive rent in advance you are still supposed to be taxed on it even though it is a deferred revenue. Is it that way for everything? I haven’t gotten to the chapter on deferred tax assets, so maybe this is why I am confused. But even so, for companies that don’t have to follow GAAP, I wonder how this works.

    The reason I’m asking is because my sister, Holli, is a wedding photographer. She brings in about $250K per year. Because she is so good, her clients will pay 1/2 of the contract price sometimes a year in advance just to book her. I’m helping her keep the books on a cash basis, but have thought about switching to accrual. Let’s say out of the $250K she makes in a year, she has only earned $100K by actually taking their pictures, can we (on the tax return) defer the other $150K until the wedding date when Holli earns the income, or does she pay taxes on the full $250K no matter what? (Assuming we are using accrual now) Thanks friends!

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