Coeur d’Alene Business Accounting Method Guide

Tax law allows the most common accounting methods for computing your Coeur d’Alene business’s taxable income.

Scenario

Let’s say you completed a job for a client in December and billed them in December. However, the client did not pay until January.

• Should you report the income in December or in January? The answer depends on the accounting method your Idaho business uses.

The most commonly used accounting methods are:

• The Cash Method of Accounting. With this method, you report income in the year you receive it and deduct expenses in the year you pay for them.

Thus, you would report the income in January when you received it.

• The Accrual Method of Accounting. With this method, you report income in the year you earn it, even if your customer has not yet paid you. Similarly, you deduct expenses in the year you are liable for them, even if you have not yet paid.

If using accrual, you would report the income in December because December is when you earned the money (did the work).

Unless the law requires otherwise, most small businesses in Coeur d’Alene choose to use the cash method because it has the greatest tax planning flexibility. With the cash method business can pre-pay bills and hold off on billing towards the end of the year. This can greatly influence your Idaho businesses tax liability.

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