Setting up the books, cash versus accrual, changing methods on Form 3115, inventory accounting, and the records the IRS expects you to keep.
26 guides, each written by a CPA licensed in the US and Canada.
Changing a business's accounting method (from cash to accrual, changing inventory valuation, adopting or revoking LIFO, changing depreciation methods.
Small Business & BookkeepingThe IRS requires adequate records to support income, expenses, and deductions. Minimum bookkeeping requirements for tax compliance: 1.
Small Business & BookkeepingA separate business bank account simplifies bookkeeping, strengthens audit defense, protects LLC liability shielding, and makes tax preparation faster.
Small Business & BookkeepingThe IRS requires businesses to keep records that support the income and deductions reported on tax returns for the applicable statute of limitations.
Small Business & BookkeepingBusinesses with gross receipts of $32 million or less (2026) can use cash method. Accrual is required above that threshold, with exceptions for small taxpayers.
Small Business & BookkeepingMost small businesses ($32 million or less in average gross receipts for 2026) can use the cash method, which is simpler and provides more tax timing control.
Small Business & BookkeepingCash vs. accrual accounting affects when income is taxed. Businesses with average gross receipts of $32M or less (2026) can generally choose either method.
Small Business & BookkeepingCash basis recognizes income when received and expenses when paid. Accrual matches revenue to the period earned. Each method shifts your taxable income.
Small Business & BookkeepingThe choice between cash and accrual accounting affects when income is recognized, when expenses are deducted, and how much tax you pay each year.
Small Business & BookkeepingThe cash method recognizes income when received and expenses when paid. The accrual method recognizes income when earned and expenses when incurred.
Small Business & BookkeepingCash basis reports income when received and expenses when paid. Accrual basis reports income when earned and expenses when incurred.
Small Business & BookkeepingChanging accounting methods requires IRS approval via Form 3115. The IRC 481(a) adjustment spreads the tax impact of the change over up to 4 years.
Small Business & BookkeepingUnder the constructive receipt doctrine, income is taxable when it is made available to you without substantial limitations.
Small Business & BookkeepingDIY bookkeeping with QuickBooks or Wave works for simple businesses under $200,000 in revenue with few transactions. When to DIY vs.
Small Business & BookkeepingChanging an accounting method, like cash to accrual or a depreciation fix, takes Form 3115 and usually a 481(a) adjustment. How automatic consent and the spread work.
Small Business & BookkeepingForm 3115 changes your accounting method. A negative Section 481(a) adjustment is deducted in full in the year of change; a positive one spreads over 4 years.
Small Business & BookkeepingThe IRS requires business records for 3-7 years depending on the type. Retention periods by record type: Keep for 3 years (standard audit statute): -.
Small Business & BookkeepingBusinesses that produce or purchase goods for resale must account for inventory under IRC 471. Businesses that produce, purchase, or sell merchandise.
Small Business & BookkeepingSmall businesses with average gross receipts of $32 million or less (2026) can use the cash method and are exempt from complex inventory accounting rules.
Small Business & BookkeepingSmall businesses with inventory must choose an accounting method: FIFO (first in, first out), LIFO (last in, first out), or weighted average cost.
Small Business & BookkeepingBusinesses that sell physical products must account for inventory, and the accounting method chosen (FIFO, LIFO, weighted average.
Small Business & BookkeepingCash-method businesses can accelerate deductions by prepaying certain expenses before year-end. Under the 12-month rule (Reg.
Small Business & BookkeepingProper bookkeeping starts with a chart of accounts that matches IRS expense categories on Schedule C. Schedule C expense categories (the tax return drives.
Small Business & BookkeepingSmall business owners must track expenses in the correct categories to maximize deductions and prepare for tax filing. The Schedule C expense categories.
Small Business & BookkeepingThe 12-month rule (Reg. 1.263(a)-4(f)) lets a cash-basis business deduct a prepayment in the year paid if the benefit ends within 12 months and by the end of the next tax year.
Small Business & BookkeepingMost business owners benefit from a CPA when revenue exceeds $50,000 or when the business has employees, an S-Corp, rental property.