Small Businesses have yet another tax ruling in their favor. For 2001 and all subsequent years, businesses with up to $10 million in gross receipts may use the cash accounting method for tax purposes. Prior to the 12/10/01 IRS announcement, businesses with more than $1 million in gross receipts had to use the more complicated accrual and inventory accounting methods.

Said to affect over 500,000 small businesses, the simple cash method allows businesses to deduct expenses when purchased and eliminates taxes on income that has yet to be received. The accrual method requires businesses to report income on services or products sold even if they haven?t received payment. Where as the more realistic cash method allows businesses to report income only when it has been received.

Not all businesses qualify! Even if a business has less than $10 million in income in still may not use the cash method if it falls into one of the following business types: manufacturing, wholesale trade, retail trade, mining and some media industries (i.e. magazine & newspaper publishers).

If a business elects to change to a new method, the IRS requires a form filing specifying the change.