More Businesses Can Use The Cash Method

Now more small businesses can use the cash method to report their income to the IRS. The IRS recently announced that certain small businesses with gross receipts of $10 million or less can use the cash method of accounting for tax purposes. That's up from the previous limit of $1 million or less.

This change in policy is good news for small businesses. The cash method allows businesses to report income when customers pay their bills rather than when the sale occurs (the accrual method). Since most customers don't pay their bills immediately, businesses using the accrual method often have to come up with the money for taxes before they receive payment from their customers.

An estimated 500,000 small businesses may benefit from this change. Qualifying businesses can switch methods for their 2001 returns by following a special IRS procedure. The new rules specifically exclude certain types of businesses from using the cash method even if they meet the gross receipts test. For example, manufacturers, wholesalers, retailers, and mining operations must continue to use the accrual method.

If you'd like to discuss whether your business might benefit from changing its method of accounting, give us a call.

Related items:
        Accounting Methods
        Cash Versus Accrual Example
        Consulting Services
        Federal Tax Identification Numbers
        Income Tax Year
        More Businesses Can Use The Cash Method
        Small Business Services
        Tax Services

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