I was very discouraged to have to deliver the news when I had a client tell me, “We are going to go through our Accounts Receivable and find invoices that we can write-off to lower out tax liability.” I replied to them, “Unfortunately, you file your taxes on a cash basis which means we do not recognize accounts receivable as revenue in the first place, which means you cannot “write-off” accounts receivable as an expense.” My client was disappointed to hear this news, but after I explained the benefits of filing their taxes on a cash basis, they understood.
As a business owner, it is very important to work with your accountant to determine if you should be filing your taxes on a cash or an accrual basis. How you file your taxes can have a major impact on your tax return. It is very important to understand the differences and make the decision that is right for your business with the help of your accountant.
Not sure of the differences in the filings? Or have questions about cash versus accrual basis accounting? Book a free consultation with me to learn more.