The accounting method you choose has real implications for tax liability, reporting, and compliance.
Cash Basis
Recognize income when received, expenses when paid. Simpler, more tax planning flexibility.
Accrual Basis
Recognize income when earned, expenses when incurred. More accurate picture of profitability. Required for businesses with inventory or over $29M average gross receipts.
NJ Treatment
NJ follows the federal method election. Changing methods requires IRS Form 3115.
My Recommendation
Cash basis for most NJ service businesses. Simpler, flexible, and adequate without inventory. Accrual basis if you’re growing significantly or have complex inventory.
Disclaimer: The information provided is for general educational purposes only and does not constitute tax, legal, or investment advice. This content is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Tax outcomes depend on your specific facts and circumstances. Viewing this material does not create a CPA-client relationship. Personalized advice is provided only through a signed engagement letter.
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