Why Choose Cash Basis Accounting for Tax Purposes?

There are several reasons why it’s advantageous for small business owners to use cash basis accounting for tax purposes. The two most notable reasons revolve around the recognition of payroll expenses and the benefits of credit utilization.

Payroll Benefits

The IRS allows all businesses on the cash basis accounting method to write off certain expenses. Some cases allow for expenses that were not actually paid for in cash by the end of the year. Consider the following: if you are paying payroll to your employees in your business you might have a payroll at year-end that does not actually get paid before the end of the year. That being the case, the payroll and related payroll taxes can still be acknowledged as write-offs on your tax return. This allows businesses to record a payroll/bonus with the accrual function, use it on their taxes as a write-off, & avoid paying it until the new year.

Credit Utilization

We can also record any type of business expense and pay it with a credit card using cash basis accounting. These business expenses that are paid by credit card are still complete write-offs, in the year purchased, even though the owner might be paying just the minimum payment each month on the credit card and the full amount of all expenses does not get fully paid for months or years to come. This allows us to use our credit cards to maximize business expenses and reduce our federal tax liability. 

Knowing this, contractors and business owners can order the materials they know they will be needing in the coming months. Then, they can charge them to their credit card before the end of the year. Now, these expenses can be considered a write-off in the year purchased without even having to pay anything before the year ended.

Get Cash Basis Accounting for Quickbooks for Tax Purposes

There are real tax advantages for users of the cash basis accounting method. Leveraging the features mentioned can allow you to conserve your cash and use it to help your business to grow. For more on the benefits of cash basis accounting, pick up our new book Cash Basis Accounting for Quickbooks. Written by Certified Quickbooks ProAdvisors and authors Mike and Eva Russell, this book teaches contractors, lawyers, real estate brokers & agents, accounting students, doctors, and more how to leverage cash basis accounting in their favor using Quickbooks. Learn more about the book today by visiting our Amazon page or contacting our team today!

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