CFP

By Investopedia AAA

Tax Accounting - Installment Sales

Installment Sales
If you sell property at a gain and you will receive more payments in future years, you may use the installment method to defer tax, unless you're a dealer of the property sold OR the property is publically traded securities. This method allows you to report profits as taxable in the year the installment is received.

Gross Profit Percentage = Profit/Sales Price (contract price)

Profit to Report as Taxable = Gross Profit Percentage x Installment Payment

If you have large losses in the year of an installment sale, the installment method may not be the best method to report. In this case, the taxpayer would want to report the full gain in the year of sale so the gain can be offset by the losses.

Exception: The original seller must recognize all gains deferred by an installment sale, if he or she sells to a family member who in turns sells the property within two years.

Inventory Valuation and Flow Methods

You May Also Like

Related Articles
  1. Technical Indicators

    Strategies To Trade Volatility Effectively ...

  2. Fundamental Analysis

    How Investment Risk Is Quantified

  3. Trading Strategies

    Rules and Strategies For Profitable ...

  4. Fundamental Analysis

    How To Manage Portfolio Risk

  5. Trading Strategies

    Enter Trades Ahead Of The Emotional ...

Trading Center