Accrual vs Cash Tax Filing

There are two different ways that you could be eligible to file your taxes—on a cash or an accrual basis.

You’re going to file on a cash basis if you get paid after you provide the service(s) because that’s when you’ve earned the money. If you get paid later, you want to file on a cash basis, because you don’t want to pay taxes on money you earned, but haven’t collected yet.

The opposite is true for accrual basis. If you collect the money before you provide the services (e.g deposits or upfront payments), you should consider filing on an accrual basis because you don’t want to pay taxes on money that you’ve collected, but you haven’t earned yet.

In summary, file your taxes on a cash basis if you get paid after you earn the money or an accrual basis if you get paid before you earn the money. Make sure you work with your CPA on a regular basis to minimize your taxes to increase the profitability and safety in your business.