Things You'll Need:
- Information on all the income you RECEIVED during the current tax year.
- Information on the expenses you actually PAID during the current tax year.
- Information on your company assets that you depreciated during the current tax year.
- Information you have for all automobile expenses you PAID or business-related mileage you incurred during the tax year.
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Step 1
Assemble data on all income that you RECEIVED during the tax year. Do not consider any income you have earned, but not yet received from clients or customers. It doesn't matter how much income you are owed and will collect in the next tax year. Don't forget to include income you received in the current year that you actually earned in the prior tax year.
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Step 2
Collect and record information on all your expenses PAID by your company over the current tax year. For cash-based accounting tax purposes, disregard (temporarily) all expenses owed, but not paid by your company by the end of the tax year. These will be recorded as they are paid during the next tax year.
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Step 3
Include only those payments that are true expenses, and not amounts spent to purchase assets (furniture, computers, office equipment, improvements [repairs, however, are generally classified as expenses], autos, real estate, or other items that will be depreciated over two or more years).
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Step 4
Calculate additional expenses that are non-cash items. Depreciation on company assets are the most common entries in this group. For example, assume you spent $3,000 on new office furniture at the beginning of the tax year. You decide that you will write-off this cost over the next 3 years. Your expense for the current tax year will be $1,000.
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Step 5
Another common category that provides a choice to you is your auto expense. You often have the option to compile your actual auto expenses, including fuel, repairs and other directly related costs or you can use your actual business mileage and the currently allowable cost per mile to operate a business vehicle. If you choose the mileage deduction method (if it is to your advantage), you cannot use actual expenses paid to operate your vehicle for business purposes.
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Step 6
Subtract your total expenses paid from your total income received. The result is your net income (taxable income) for the current tax year. Regardless of the income you're waiting to receive or expenses that were incurred, but not yet paid during the current tax year, this cash-based accounting method is acceptable for tax reporting purposes. Follow the remainder of IRS instructions to include this income/loss in your complete tax return.
