Should You Defer Income Until Next Year? What Business Owners Need to Consider

A business finishes the year stronger than expected. Revenue is up, a few big projects wrapped, and the latest tax projection shows a bigger bill than the owner planned for. The obvious thought: can some of that income slide into next year?



Sometimes, yes. Deferring income can be a smart move when you expect your situation to change. But pushing revenue back doesn’t automatically cut your taxes or help the business. It depends on when the income has to be reported, what next year looks like, and how much cash you need in the meantime.

Think it through before you change a payment schedule or sit on an invoice.

First, Know When You Have to Report the Income

Your accounting method decides this, so start there.



If you use the cash method, you generally report income when you receive it. That includes income you’ve constructively received, meaning the money was available to you with no strings attached. Say a customer has a December check ready for you, and you tell them to hold it until January. That usually won’t move the income into next year. It was available, so it counts.

Accrual businesses play by different rules. You generally report income once you have the right to be paid and can reasonably figure out the amount, whether or not the cash has shown up.

So holding back an invoice or asking for a later payment date doesn’t necessarily change the year the income lands in. Find out which method you’re on before you try anything. The IRS covers the rules in its Tax Guide for Small Business.

When Deferring Income Makes Sense

It can work when you have a real, legitimate reason for the income to fall in a later year, and the timing fits your goals.

Picture a consulting firm that had a great year and expects a slow first quarter. A project is set to start in January, and under the signed terms, the work and the payment milestone both happen next year.

Depending on the accounting method and the recognition rules, that income may belong in next year’s return. If next year’s taxable income will be lower, reporting it then could leave you better off.

Keep in mind that a lower bill this year doesn’t mean lower taxes overall. The income still gets reported eventually, so you need to know what that does to next year’s bill.

What Does Next Year Look Like?

This is where you have to look past this year’s projection.



If you’re expecting strong growth next year, there’s not much point shoving income into a year that’s already going to be busy. You could end up piling more taxable income onto a future return and paying at a higher rate. If you’re heading into a slower stretch, big expenses, or a dip in profit, the math can go the other way.

So build a realistic forecast.

How much revenue will you actually bring in? Will higher sales turn into higher profit, or will rising costs eat the gain?  Do you have hiring, expansion, or equipment purchases coming that would change your taxable income? A forecast built on revenue alone will miss a lot of this.

Don’t Let a Tax Move Cause a Cash Problem

Cash matters just as much as the tax bill. You have payroll, supplier bills, and loan payments to cover, and maybe some investments planned. Delaying customer payments or reworking your billing can leave you short when those come due.



It can also strain relationships. If waiting on a payment makes collection less certain, or irritates a good customer, the tax savings may not be worth it.

The goal is to manage timing through legitimate business arrangements while keeping cash healthy and operations steady.

Weigh Both Years Together

Deferral is worth a look when the tax rules allow it and the numbers support it. Before you act, compare your expected tax position for both years, check your cash needs, and confirm when the income legally has to be recognized. Also check whether any advance payment rules, contract terms, or accounting method rules affect the timing you have in mind.

At Straight Talk CPAs, we help business owners see past the immediate tax bill to how their decisions affect the business as a whole. We do that through tax planning, financial analysis, and guidance that runs all year, not just in December.



Before you defer anything, ask what the business is earning now, what it expects to earn next year, and how much cash it needs to get from one to the other. A good decision helps the business across both years. It doesn’t just move a tax bill from one place to another.

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