Have a follow up at the 'extreme' example of the above. It's a good 'toy' problem but it is actually true in my case. To simplify:
- I have about $1M on my 1099-NEC (prepayment for goods for resale)
- I file on an accrual basis, and I have only delivered $100K of the goods. Therefore, the correct income is $100K for this tax year but it will look very odd considering the large 1099. As mentioned above, this will lead to an automated trigger of some type of check or audit if I report a low income.
- California has a 'revenue tax' with which, if I 'falsely' use the $1M income number and add a $900K deferred revenue expense, I would pay an extra tax ($2.5K), even if the bottom line evened out.
So, to conclude, I basically have to choose between an audit and $2.5K 'incorrect' tax. What would you do?
