Annuity Chargeback and Tax Consequences

[mahdlokg]

I'm going to try this question again.......Go to post #1, please. Does anyone have any idea how to report this on taxes?

 

[Golfnut2112]

You need to report whatever amount is on your 1099. You cannot deduct it as a business expense until you actually make payments on it. This year your first $40,000 of commissions with the company less payments made will not be taxable. If you don't do any business with them, all payments made will be deductible.

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I am not a tax advisor, however since the entire business revenue loss ($40k) was realized in 2015, regardless of how you finance the loss to be repaid, it should be deducted in full from your gross revenues for 2015.

Just my thoughts.

You cannot deduct it from your gross revenues since you made no payments on it in 2015.

 

[walthamny]

If you use cash accounting for your business, you can only deduct what you paid back during 2015.

If you use accrual accounting, you can deduct the full amount of liability whether you pay it or not.

Most of us use cash accounting when we get into this business, accrual accounting is hard. Now you can switch to accrual accounting from cash accounting under some circumstances. IRS needs to know reasons, having a one time event like this may not be good enough and they can object to your change of accounting methods. If you are really thinking going this method, talk to an experienced CPA where they can guide you or talk you out of it. CPA answer will take into account your business structure, number of tax returns already filled for the business income and so on. IRS does not allow you to switch accounting methods freely as you see fit.

 

[Abbie Beadles]

My friend was facing the same difficulty. Hope so this helps out.