It’s a simple thing to do. All that is needed is a simple check in the box under cash or accrual on a new business’s first tax return. But the choice of accounting method for a new business is a complex decision that can have tremendous tax consequences, as well as an impact on the success or failure of that business. In a recent issue of TAXES-The Tax Magazine, accounting professor James P. Angelini outlines the decision-making process that goes into choosing the accounting method for tax purposes. He describes the times when the IRS says there is no choice, as well as what considerations must be made when the choice is available between cash and accrual. He clearly presents the variables used to decide on accounting methods and what the tax consequences will be of those decisions. Using these tools can help practitioners avoid heat-of-the moment mistakes in the rush to file that first tax return for a new business.
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This story is from the CCH’s monthly Focus on Tax newsletter, which provides advise and guidance on federal and state tax issues for tax and accounting professionals.
Read this article from CCH’s Journal of Taxation of Financial Products.
