Tax Planning &
Tax Preparation

Tax Planning & Tax Preparation

Financial managers can do certain things to increase or decrease the net income that is reported during the year. This is called profit smoothing, income smoothing or just plain old window dressing. This is not the same as fraud, or cooking the books.

Most profit smoothing will involve projecting some amount of revenue and/or expenses into future years than they would normally be recorded. One common technique for profit smoothing is to delay normal maintenance and repairs. This is referred to as deferred maintenance. Many routine and recurring maintenance costs that are required for trucks, autos, trucks, machinery, business equipment and buildings can be deferred until later accounting periods.

Any business that spends a significant amount of money for employee training or business resource development may delay these programs until the next year so the expense in the current year is lower.

A company may be able to cut back on its current year outlays for market research and product development.

For CPA and Income Tax Services, contact:

June Cox CPA, MS

5595 Kietzke Ln, Suite 116
Reno, NV 89511
Phone 775-853-1000
FAX 775-853-1020
eMail JCox@coxcpa.us
A business may be able to put off recording some of its bad debts expense until the next reporting year by easing up on its rules regarding when slow-paying customers are written off to expense as bad debts or as uncollectible accounts receivable.

A fixed asset that is not being actively used may have very little current or future value to a business. Therefore, instead of writing off the undepreciated cost of the impaired asset as a loss in the current year, a better decision might be for the business to delay the write-off until the next year.

It is easy to see how manipulating the timing of certain expenses can make an impact on net income. This is not illegal although without professional advice and monitoring, companies can go too far in massaging the numbers so that their financial statements are misleading. For the most part, however, profit smoothing is simply calculated financial manipulation in order to serve the bottom line the most effectively from a tax perspetive. Accountants refer to these as compensatory effects. The effects next year offset and cancel out the effects in the current year. Less expense this year is balanced by more expense the next year.

It is easy to see that experienced accounting advice can save a company money by reducing their tax obligation. This is the kind of expertise you will find at Proctor Accounting.