Accounting Methods for Taxes Page by Don Fitch CPA (877)CPA-Help

wwwPaylesstaxcom
Toll Free (877)CPA-Help or (877)272-4357

Don Fitch CPA's professional services include Guaranteed results with the IRS, tax returns for ALL 50 STATES, Financial and IRS Audits, Financial Reviews, Compilations, IRS Discovery's, Natural Disaster Relief, Lender Letters, and CPA Employment Verification

Accounting Methods for Taxes
Page

Chat Live with a CPA

Free Website Contact Form sent directly to Don Fitch, CPA

Free Phone Tax Consultation

Free Tax Forms from 1980 to Present

Free Online Tax Chat with Don Fitch, CPA

Free Video Conference with Don Fitch, CPA

Actual IRS Wage Levy Releases

Actual IRS Offers in Compromise

Actual Testimonials

Actual Lien Releases

Don Fitch CPA's Guaranteed IRS Wage Levy Release Program

Haven't Filed in Years! What should I Do?

What to Look for in a CPA

Taxes and Bankruptcy

We prepare Federal and State Tax Returns for ALL 50 States!

(Individual)

(Amended)

(Partnership)

(Trust)

(Corporation)

(Sub S-Corporation)

(Estate)

(Gift Tax)

(Federal Unemployment Taxes)

(Payroll Taxes)

(Non Profit)

(Information)

Don Fitch CPA's Resume

Webmaster's Resume

Don Fitch CPA's Employment Opportunities

Directions to Don Fitch CPA

ACCOUNTING METHODS FOR TAXES

To compute federal income taxes, each taxpayer must adopt an accounting method. An accounting method identifies the timing of income or expense -- when amounts are included in income and when expenditures are deductible. The method of accounting used by a taxpayer does not determine whether and to what extent a particular item is eligible for deduction or exclusion; this determination is based on substantive tax law. However, the taxpayer's accounting method determines when -- that is, in what taxable year -- each item of income and expense is included or deducted. See Section 501.2

No uniform method of accounting can be prescribed for all taxpayers. Instead, taxpayers may adopt such forms and systems as are, in their judgment, best suited for their needs. Reg. Section 1.446-1(a)(2). However, the Code lists these permissible methods:

(1) the cash receipts and disbursements method;

(2) the accrual method;

(3) any other method permitted by the Code (such as the installment sale method, the long-term contract method, or the uniform capitalization provisions); and

(4) any combination of the these methods permitted under regulations. Code Section 446(c).

The two most commonly used methods of accounting are the cash method and the accrual method. The cash method typically is used by wage-earners and the accrual method by businesses, although many sole proprietors who also
have wage income use the cash method for their business as well. See Section 501.3

Whatever method of accounting that a taxpayer chooses, the method must clearly reflect income. Code Section 446(b). See Section 501.4 In addition, a method of accounting must be consistent in its application. Each taxpayer must compute his taxable income under the method of accounting on the basis of which the taxpayer regularly computes his
income in keeping his books. However, a taxpayer engaged in more than one trade or business may use a different method of accounting for each trade or business, as long as the trades or businesses are separate and distinct. See Section 501.5