Accrual method notes for Enrolled Agents
Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible.
Under the accrual method, you generally report income in the tax year you earn it, regardless of when payment is reneived. You deduct expenses in the tax year you incur them, regardless of when payment is made.
- You can take a current deduction for taxes when economic performance occurs.
- You generally report income in the year earned and deduct or capitalize expenses in the year incurred.
- You generally report receipt of an advance payment for services to be performed in a later tax year as income in the year you receive the payment.