Pre-paying hosting/consultancy

[aspdaddy]

If I pay invoices before the end of the tax year for services that I have in both this and the following year does that mean the costs occur in both years, or just the year when I get the invoice

I usually do this with hosting, paying upfront for a whole year and buying extra consultancy & training days to negotiate a good discount, but now Im told I should calculate when the service is provided for acounts purposes, is this right, seems unfair nearly everyone I know does this to pile up costs in yr 1.

[cmendla]

That is really a question for an accountant. You will either be on a cash or accrual basis. As far as I know you have to be consistent. You use one or the other for everything.

I do everything business wise through my s-corporation. As far as I know, s-corps have to do everything on an accural basis.

Again, you need to run this by an accountant. They can be expensive but you want to find one that you can trust and who will answer questions like this throughout the year.

[aspdaddy]

Thanks I checked it out but as we do accural accounts its not possible. All services are accounted for according to the delivery dates not the invoice dates

[LifeinAsia]

For accrual method taxpayers, "deduct your business expenses in the year you become liable for them, regardless of when you actually paid them."
- irs.gov

In other words, for your 2006 return you deduct the costs of those services you received in 2006 (e.g., hosting for Jan.-Dec. 2006). For your 2007 return you should deduct the costs of those services you receive in 2007 (e.g., hosting for Jan.-Dec. 2007). Regardless of when you actually paid for them.

[edited by: LifeinAsia at 7:46 pm (utc) on Jan. 11, 2007]