Weddings Deposits and Tax Time...

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rhythmgj

DJ Extraordinaire (Hey, Everybody's Doing It!)
Nov 10, 2013
1,190
1,648
Buffalo, NY
What do all y'all do with deposits and your books for tax purposes? If the gig is 6 months to a year away, do you cash the deposit check and count it as income in the year that you receive it, cash it and hold it in an account and count it as income in the next year (year of gig), or just hold the check, period?

GJ
 
I file based on the event date as the income timeline as that is what my contracts shows regardless of when I receive the retainer. If you get audited, the contract shows when the income was earned, not when the retainer was received, and since the retainer and the balance are the sum total of the income itself, it just makes sense to do it that way. My accountant was the one who said that this was the best way for us to run because I had asked the same question. As a rule, I don't spend ANY part of the retainer until the event is complete since you never know if you would have to return it (YMMV on how you handle retainers and I don't want to hear how anyone else does it and frankly don't care.) if a major event occurs lets say on my end (major medical...etc) and then what, it's already counted as income even though it was returned??? So that is why I do it that way and for the last 25 years, never been audited because of this methodology. YMMV.
 
Any retainers and advance payments are placed into an "escrow" checking account and transferred into the "regular" checking account once the event has passed. (I make the transfers about once a month) So the deposits, or payments, are taxable on or after the event date.
 
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Just exchanged emails with my accountant about this last week.
ME: Another question I have is, if I receive money this year for a 2015 event, which year do I report the income for?
Accountant: All income is reported in year received no matter when “earned”. That is call the cash basis

So deposits retainers, advance payments are reported in the year they are paid to you regardless of the event date when they are earned.
 
I just looked at my lists. I also track when funds come in - so I do get taxed as money comes in. I have to imagine though , that if you did not track this, a simple contract showing what you did, when and for how much would suffice. My contracts stay here .. but all my financial info goes to the accountant. The accountant doesn't care what you did when - they just care about how much money you received this year.

Again, worst case scenario, you could present the dollar amounts by event - and thats how you would be taxed.
 
Just exchanged emails with my accountant about this last week.
ME: Another question I have is, if I receive money this year for a 2015 event, which year do I report the income for?
Accountant: All income is reported in year received no matter when “earned”. That is call the cash basis

So deposits retainers, advance payments are reported in the year they are paid to you regardless of the event date when they are earned.

So what do you do when the taxes are filed and you end up returning the retainer for whatever reason?
 
All monies received and or deposited are considered income. If a Deposit has to be refunded it is considered outcome/expenses. Its in the bank, its received, under your name, its yours.
 
When it is deposited it is considered income in that year. If you have to do a refund it is considered an expense for that year. My accountant told me it is always easier from the business and accounting side to keep the performance dates and money together, but by the tax law you must do it on the date of receipt and date of expense.

I guess it would be a grey area if you accepted a check and held it, as the funds are not deposited and available for your use, but if you take cash, credit card, pay pal, etc., the funds become income when deposited.

Not a big issue for me, as a hobby DJ and with a policy that I don't accept any funds till you are satisfied with my services. I am sure I would use a different policy if I was doing this for a living and doing more than 20-26 gigs a year.
 
Kittmaster.. houston and oldschool have it right.

Maybe, but since I hold he checks until the event is completed, option 3 still works, and has worked for all my years in business (28 years) and has even survived an IRS audit. Cheers.
 
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Different agents, different results. A state tax audit required all contract signing payments to be claimed income in the fiscal year when received. The state audit triggered a federal inquiry.

If you are audited and do not follow the rule, all the contract signing payments will be added retroactively, a new filing required, and a late payment penalty levied. It can be financially painful for such a simple turn around in fiscal practices.

Very painful.
 
I track all income by the date I received/cashed it. AFAIK the event date makes no difference; you got the money today, therefore it's this year's income.

Also, you people hold onto the deposit check and don't cash it? Then why even ask for it in the first place? A check is no guarantee of money, and often not worth the paper it's made of.

I don't consider the deposit/retainer complete until cashed and cleared.
 
Do you really have to ask? I've mentioned and so did someone else we don't cash it until the event is over. We ask for it because in a court of law, a bad check loses every time and you can sue for damages. But really, if you have to sue for damages, then you're doing business with the wrong people. I've been at it for 28 years, the company itself since 1975, has been doing it the same way, never had an issue. You do it your way, we'll do it ours.....not really a subject for debate. The main point about doing it this way is both customer satisfaction and IRS accountability of earned income in that tax year when the checks are cashed after the event. Can't be much clearer than that. Cheers.
 
The notion of a DJ taking a "retainer" is stupid. The law requires any portion of a retainer not earned be returned to a client - therefore you are setting yourself up for conflict. Furthermore, if you "escrow" these funds you are essentially making an admission that you are not entitled to keep them should the event not proceed, the client change their mind and hire a different vendor, or seek to renegotiate the terms.

The keywords are "non-refundable" and/or "liquidated damages" thus, any deposit so described is earned at the time is is received. Cash it, and report it - whether you are accounting by cash or accrual method really doesn't factor into this issue.

Cash method reports simple income/expense at the date it is received or spent.
Accrual method tracks value changes in liabilities/assets - things like receivables, and accounts payable. Under the accrual method you would essentially be taxed for the date the contract is signed (asset created) or cancelled (liability).
 
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Maybe, but since I hold he checks until the event is completed, option 3 still works, and has worked for all my years in business (28 years) and has even survived an IRS audit. Cheers.

The length of time involved is a significant factor. Checks received in December and held until January are common. Checks received in June and deposited 10 months later are highly suspect. Most people would make the December/January decision based upon a specific tax advantage/disadvantage in that specific tax period. The notion of "escrow" where there is no third party booking agent would make the holding of checks for longer periods highly suspect.

Revenue departments generally consider your holding a check to be an invalid displacement of the income since the funds were effectively available to you the day the check was presented. If your contract further describes that deposit to be non-refundable or liquidated damages then you may be acknowledging that the funds were yours as of the date the check was received.

By and large the IRS is more concerned that all income is reported - as opposed to exactly when a particular portion enters your accounting record. Unless they had specific concern about your method of accounting and evasion - they might never go beyond the surface of total contract value and event date. State revenue departments on the other hand, may have a sales/use and or service tax interest. These taxes become due at the time the sale is made. A State in that case would take a greater interest in your handling and accounting method.

A secondary issue can arise by delaying deposit of the check. Many banks may refuse to cash a check that is more than 30, 60, or 90 days out. The client may also have standing for relief and recovery if the check bounces and you failed to cash it within a reasonable time.
 
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The notion of a DJ taking a "retainer" is stupid. The law requires any portion of a retainer not earned be returned to a client - therefore you are setting yourself up for conflict. Furthermore, if you "escrow" these funds you are essentially making an admission that you are not entitled to keep them should the event not proceed, the client change their mind and hire a different vendor, or seek to renegotiate the terms.

The keywords are "non-refundable" and/or "liquidated damages" thus, any deposit so described is earned at the time is is received. Cash it, and report it - whether you are accounting by cash or accrual method really doesn't factor into this issue.

Cash method reports simple income/expense at the date it is received or spent.
Accrual method tracks value changes in liabilities/assets - things like receivables, and accounts payable. Under the accrual method you would essentially be taxed for the date the contract is signed (asset created) or cancelled (liability).

PERHAPS your definition of the legal status is accurate, but that doesn't make the practice "stupid". Taking a retainer is customary in the wedding industry and I have never had a client come force me to give back a deposit. In fact, I've had a number of events where they lost their deposit and I was able to re-book the date. Now perhaps you or others here might not think that's fair business practice but this is clearly spelled out in the contract, which the client agrees to and signs up front. That "stupid" practice has put a significant piece of revenue onto my books. Feel free to run your business the way you see fit. I'll run mine my way.
 
PERHAPS your definition of the legal status is accurate, but that doesn't make the practice "stupid". Taking a retainer is customary in the wedding industry and I have never had a client come force me to give back a deposit. In fact, I've had a number of events where they lost their deposit and I was able to re-book the date. Now perhaps you or others here might not think that's fair business practice but this is clearly spelled out in the contract, which the client agrees to and signs up front. That "stupid" practice has put a significant piece of revenue onto my books. Feel free to run your business the way you see fit. I'll run mine my way.

I may be wrong, but I don't think Pro had an issue with money being received to hold a date .. it's the terminology and meaning of "retainer".
 
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