Income Tax Accounting Methods

Income Tax Accounting Methods

Tax accounting methods determine when revenue and expenses are recognized for tax purposes, impacting which tax year they fall into. The most common tax year is the calendar year, but some businesses use a fiscal year or a short tax year. The two main accounting methods are cash and accrual.

Cash Method

With the cash method, you report income in the tax year you receive it, and you deduct expenses in the year you pay them.

Accrual Method

With the accrual method, you report income in the tax year it’s earned, even if you haven't received the payment yet. Similarly, expenses are deducted in the year they’re incurred, regardless of when you pay them.

Implications of Accounting Methods

Choosing the right tax accounting method can help your business by shifting revenue to later tax periods and expenses to earlier ones. This can potentially defer income taxes and create interest-free working capital for your business. InGame Enterprise professionals can review your current accounting methods and ensure you're using the best strategies to optimize your tax situation.

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