s daleiden's List: Accounting/Taxes/501c

• For instance, if you incur expenses in the 2007 tax year but don't pay them until the 2008 tax year, you won't be able to claim deductions for them in 2007 if you use the cash method. But you would be able to claim them if you use the accrual method, because under that system you record transactions when they occur, not when money actually changes hands.

  • Cash method sounds better for the time being except for this part.  Deductions for the tax year...
• Unless there is a valid business reason to use a different period, or your business is a corporation, you must use the calendar year -- beginning on January 1 and ending on December 31. Most business owners use the calendar year for their tax year simply because they find it easy and natural to use. If you want to use a different period, you must request permission from the IRS by filing Form 8716, Election to Have a Tax Year Other Than a Required Tax Year.

  • good to know about fiscal year.  Nolo says most need to just go with January 1 through December 31

• You must report income when you receive it.
• • Accurate Tracking of Cash Flow. Cash accounting gives an accurate reflection of your cash flow. Since it only records revenue and expenses when they actually appear in your account, you know how much cash you have on hand in the particular moment.
   
  • Inaccurate Representation of Long-Term Revenue & Expenses. While cash accounting accurately tracks cash flow, it gives a false impression of your revenue and expenses. For example, if your business generated a lot of revenue in 2009, but payment for that revenue was not received until 2010. As a result, your business shows negative cash flow, even though you anticipate receiving payments.
   
  • Less Bookkeeping. Tracking your business account is fairly straightforward - transactions are recorded only when cash leaves or enters your account.

• Hybrid Method of Accounting

   

  The hybrid method of accounting allows your business to use any combination of cash, accrual, and special methods of accounting. Generally, the IRS allows businesses to use this method as long as it is calculated and reported consistently. However, you cannot use the hybrid method if you use cash accounting to report income or accrual accounting to report expenses. See IRS.gov for more exceptions.

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• Combination Method

   

   

   

   

  You can generally use any combination of cash, accrual, and special methods of accounting if the combination clearly shows  your income and expenses and you use it consistently. However, the following restrictions apply.  

   
   

   
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    If an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales.  (See, however,   Inventories,   later.) You can use the cash method for all other items of income and expenses. 

     
   
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    If you use the cash method for figuring your income, you must use the cash method for reporting your expenses.

     
   
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    If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income.

     
   
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    If you use a combination method that includes the cash method, treat that combination method as the cash method.
• • looks like doing cash method overall is the best bet and using the accrual method for any type of inventory product (e.g. start up kits).   Combo method if needed...default, regular business cash method.

• An organization that is supported by governmental agencies, contributions from the general public, and grants or contributions from public charities must receive at least one-third of its support from such sources over the five-year period in order to maintain public charity status.
• If the sum of contributions, membership fees, and revenue from exempt activities is at least one-third of total support, and the sum of gross investment income and net income from any unrelated business activities does not exceed one-third of total support, then the organization will qualify as publicly supported.

• • shortest part IV narrative