What are Deferred Revenues?
Deferred Revenues are funds collected for goods or services not yet delivered.
Examples includes portion of annual memberships, premiums, or subscriptions that have been paid up front however, have not been used yet.
What does this mean to your business?
If you sell annual packages, subscriptions, or licences, your business can defer the portion of revenue which is unearned, which means you defer the tax otherwise payable on that income. Let's go through an example.
For simplicity, assume you sold $1M of annual memberships in Jan and your year end is in June. $500K can be booked as deferred revenue. @ 12.6% small business tax rate, that's $63K taxes deferred.
1. Have a system to track your deferred revenues
2. Make sure your accountant is booking this at year end
3. Reinvest the deferred taxes, baring in mind that you will recognize the revenue next year