Entrepreneur Start-Up Series: Part 2 – Accounting Methods
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Whether you’re looking to select an accounting method for a new business or reviewing your options for an existing business, the accounting method you choose to report your income and expenses affects more than just your tax return.
In fact, the term “accounting method” not only includes the overall method of accounting you use: it also includes the accounting treatment you use for any item.
But if you don’t regularly use an accounting method that clearly reflects your income, the IRS will determine your income for you using a method of its choosing. Why put your business—your work, your passion, your time—in the hands of the IRS?
Together, we can examine the accounting methods available and choose one that’s specifically suited for your business. Your accounting method must treat all items of gross income in a consistent manner from year to year, and it must show the consistent use of generally accepted accounting principles for your trade or business.
Which method you use, however, depends on you and your business:
• The cash method: used by most individuals and many small businesses with no inventories. Corporations, other than S corporations and corporations with gross receipts of $5,000,000 or less; partnerships with a corporation, other than an S corporation, as a partner; and tax shelters are generally precluded from using this method.
• The accrual method: required for most businesses that maintain inventories. Qualifying small business taxpayers with gross receipts of $10,000,000 or less and small businesses with gross receipts of $1,000,000 or less are exempt.
• A special method for certain items of income and expense.
• A method that combines elements of any of the above.
Contact Paul Muret to schedule a review and discussion to evaluate your personal situation and help you create an accounting method that will work for your company and be favorable in the eyes of the IRS.