Questions & Answers

What is the cash method?

Most businesses with no inventory use the cash method because it is easier.

To use the cash method, include in your gross income all items of income you actually or constructively received during the tax year. If you received property or services, you must include their fair market value in income. "Constructive receipt of income" is when an amount is credited to your account or made available to you without restriction.

You must report the income in the year the property is received or made available to you without restriction. You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income.

For example, if a customer mails a check to you on December 31, 2019, and you receive the check on January 4, 2020, you will include the check as income on your 2020 tax return.

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