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Choosing the Optimal Accounting Method for Tax Savings

The accounting method your business uses to report income for tax purposes, either cash or accrual, can significantly impact your tax bill. While the cash method can offer tax-saving opportunities, the accrual method may in some cases be more appropriate or even required. So review your current method to help ensure you’re using the best method for your business.

Who Can Use Cash Accounting?

The Tax Cuts and Jobs Act made the cash method more accessible to businesses than in the past and simplified the associated requirements. In 2025, a “small business” is defined as one with average annual gross receipts of $31 million or less over the prior three years. This higher threshold allows more businesses to take advantage of the cash method, along with associated benefits such as:

• Simplified inventory accounting,
• Exemption from the uniform capitalization rules, and
• Exemption from the business interest deduction limitation.

Legislation has been proposed that would further increase the gross receipts threshold for eligible manufacturers. Contact the office for the latest information.

Some businesses are eligible for cash accounting even if their gross receipts exceed the threshold. This includes S corporations, partnerships without C corporation partners, farming businesses, and certain personal service corporations. But tax shelters of any size are ineligible for the cash method.

Why Does the Method Matter?

For most businesses, the cash method provides significant tax advantages. Because cash-basis businesses recognize income when received and deduct expenses when paid, they have greater control over the timing of income and deductions. For example, toward the end of the year, they can defer income by delaying invoices until the following tax year or shift deductions into the current year by accelerating payment of expenses.

In contrast, accrual-basis businesses recognize income when earned and deduct expenses when incurred, without regard to the timing of cash receipts or payments. Therefore, they have little flexibility in recognizing income or expenses for tax purposes.

The cash method also provides cash flow benefits. Because income is taxed in the year received, it helps ensure that a business has the funds needed to pay its tax bill.

However, for some businesses, the accrual method may be preferable. For instance, if a company’s accrued income tends to be lower than its accrued expenses, the accrual method may result in lower tax liability. Other potential advantages of the accrual method include the ability to deduct year-end bonuses paid within the first 2½ months of the following tax year and the option to defer taxes on certain advance payments.

Is This Change Worthwhile?

Even if your business would save taxes by changing its accounting method, be mindful of other possible consequences. For example, if your business prepares its financial statements in accordance with U.S. Generally Accepted Accounting Principles, it’s required to use the accrual method for financial reporting purposes. So, using cash accounting for tax purposes would mean keeping two sets of books, which can be burdensome.

Also, before you make a change, you’ll need consent from the IRS.

What Should You Do?

Evaluating accounting methods can be complex. Contact the office for help weighing all the relevant factors and choosing the best accounting method for your company.

What's Your Business Exit Strategy?

Ever since you became a business owner, you’ve focused on growing revenue, managing expenses and leveraging tax advantages. But don’t overlook a critical element of your long-term financial well-being, that is, a business exit strategy. Ideally, your exit strategy will help you meet your retirement and estate planning goals.

Multiple-Owner Businesses

A buy-sell agreement is a powerful tool for businesses with multiple owners. A well-drafted agreement outlines what happens if specified events occur, such as the owner’s retirement, disability or death. The agreement should:

• Create a ready market for the departing owner’s interest,
• Establish a valuation method, and
• Help prevent disputes by keeping ownership transitions clear.

Life or disability insurance can help fund the buyout and can give rise to several tax issues and opportunities. Life insurance proceeds are generally tax-free to the beneficiary, provided certain conditions are met, making this a tax-efficient strategy.

Family Ownership

If you have family members who are willing and able to fill ownership roles in the business, you can pass your business on by giving them interests, selling them interests or doing some of each. Consider your income needs, the tax consequences, and how family members will feel about your choice.

Under the annual gift tax exclusion, in 2025, you can gift up to $19,000 of ownership interests without using up any of your lifetime gift and estate tax exemption. Valuation discounts may further reduce the taxable value of the gift.

With the gift and estate tax exemption for 2025 at $13.99 million, gift and estate taxes may be less of a concern for some business owners. However, others may want to make substantial transfers now to take maximum advantage of the high exemption. What’s right for you will depend on the value of your business and your timeline for transferring ownership.

Outside the Family

If family succession isn’t the right fit, you might consider selling the business to key employees. This requires significant planning, including executive compensation plans, loans and possibly “key person” life insurance. So you’ll need plenty of time and professional guidance to put the elements in place.

Another option is a leveraged Employee Stock Ownership Plan (ESOP), under which an ESOP trust borrows funds to buy the company. Then stock units are periodically awarded to eligible employees and are eventually vested.

Finally, there’s the option to sell to an outsider. If you can find the right buyer, you may be able to sell the business at a premium. Putting your business into a sale-ready state can help you get the best price. This generally means transparent operations, assets in good working condition and minimal reliance on key people.

For the Best Chance of Success, Start Early

Whatever path you pursue, you want your business to be in good hands in the future. Your exit strategy will require planning well in advance of retirement or any other reason for an ownership transition. Contact the office for assistance.

Invest in Your Kids' or Grandkids' Future with Help from the Tax Code

If you’re thinking about helping a child or grandchild pay for school, you’re not alone, and you’re not without help. While families have always saved for education, Section 529 plans have made it easier and more tax-efficient.

Tax Advantages

With a 529 plan, your contributions grow tax-deferred, and no taxes are due when the money is used for qualified education expenses. These include postsecondary school expenses such as tuition, mandatory fees, books, supplies, computer equipment, software, internet service and, generally, room and board (for students enrolled at least half-time). Contributions aren’t deductible for federal purposes, but many states offer tax breaks or matching grants for contributions.

Contributions to a 529 plan may be shielded from gift tax by the annual gift tax exclusion, which for 2025 is $19,000 per recipient ($38,000 for joint gifts by a married couple). You can even choose to front-load five years’ worth of annual exclusion gifts into a 529 plan contribution in a single year. For instance, you and your spouse can contribute up to $190,000 per recipient in 2025, exempt from gift tax. Any excess contributions can potentially be made gift-tax-free under the federal gift and estate tax exemption ($13.99 million in 2025).

529 Plans Gain Flexibility

Before the Tax Cuts and Jobs Act (TCJA), the tax exclusion for qualified expenses was strictly limited to postsecondary education. The TCJA expanded this tax break to $10,000 of tuition per year at an elementary or secondary public, private, or religious school.

More recently, thanks to the SECURE Act, you may use up to $10,000 in a 529 plan to repay the beneficiary’s student loans, plus another $10,000 to repay student loans held by the beneficiary’s siblings. It also allows 529 funds to pay for apprenticeships (for example, classroom instruction at a community college).

In addition, under SECURE 2.0, from 2024 forward, up to $35,000 (lifetime limit) in unused 529 plan funds can be rolled into a Roth IRA for the beneficiary, subject to various rules.

Also, changing how financial aid is calculated on the Free Application for Federal Student Aid (FAFSA) form may help grandchildren. Gifts from grandparents to 529 accounts no longer affect the allowable aid.

Finally, legislation has been proposed that would allow tax-free 529 plan distributions for even more types of education-related expenses. Contact the office for the latest information.

Build Security for Future Generations

Given the high costs of higher education and many private elementary and secondary schools, planning is more important than ever. A 529 plan can be a powerful, tax-efficient tool to help you save for education expenses. Contact the office with questions about 529 plans.

Marriage and Taxes: Key Changes After Saying 'I Do'

It may not be as fun to plan as the wedding venue, invitations and attire, but marriage can result in changes affecting essential tax issues that need prompt attention following the wedding:

Name. If your name has changed, report it to the Social Security Administration (SSA) so that the name on your Social Security card matches the name on your tax return. To make this change, file Form SS-5, “Application for a Social Security Card,” available from www.ssa.gov.

Tax withholding. Both spouses must furnish their employer(s) with new Forms W-4, “Employee’s Withholding Allowance Certificate.” This is because combined incomes may move taxpayers into a different bracket. Search www.irs.gov for the IRS Withholding Calculator tool to help you complete the new Form W-4.

Filing status. Marital status is determined as of December 31 each year. Spouses can choose to file jointly or separately each year. Contact the office and ask to have your tax liability calculated both ways.

Sending the Kids to Day Camp this Summer?

If your child is going to a summer day camp while you work, it may count as an expense toward the federal Child and Dependent Care Credit. For one qualifying child under age 13, you may annually use up to $3,000 of eligible child care expenses, including day camp expenses, to claim the credit for one child, or $6,000 for two or more children. Under current law, the credit ranges in value from 20% to 35% of the expenses up to those limits, depending on the taxpayer’s income.

Note, overnight camp costs don’t qualify for the credit and aren’t deductible. Contact the office with your questions.

Combine a Business Outing with Tax Breaks

Summer is here, and you may be planning a picnic or other outing for your employees. When doing so, keep tax deductions in mind. Most entertainment expenses aren’t deductible, and business meals are generally subject to a 50% deduction limit. But, you may be able to deduct 100% of employee party costs. The event must be for your entire staff and not be “lavish or extravagant.” Deductible costs include food, beverages, live music and venue rentals.

Detailed invoicing and recordkeeping are a must. Before sending out invitations, contact the office about maximizing your tax deduction.

7 Steps to Take When You Open QuickBooks

7 Steps to Take When You Open QuickBooks

What do you do when you first log into QuickBooks? Maybe you’re there frequently and just popping in to look something up or fire off a quick invoice. If that’s the case, it’s not recommended that you take all these steps every time you open the program. But if you launch QuickBooks only once or twice a week, you should start a new habit by taking these actions every time you visit.

The recommended steps might seem excessive at first. After all, how much can change in a few days? A lot.

One of your connected accounts could have been hacked, and as a result, you may have bogus transactions coming in. There might have been a run on an item you’re selling, and you need to do some inventory management. Or you may find that a customer has slipped into past-due status on an invoice. So it’s important to take this advice seriously. Here are seven recommended steps to take.

1. Check for QuickBooks Updates

If you haven’t opted into automatic QuickBooks updates, do a manual check. Open the Help menu and click Update QuickBooks Desktop, then click the Update Now tab. Click in front of every program option you want updated or Select All. Click Get Updates.

2. Look for New Transactions

If you’ve connected your bank accounts to QuickBooks, check to see what transactions have come in since the last time you accessed your Bank Feeds. Open the Banking menu and click Bank Feeds | Bank Feed Center. Double-click the account you want to start with and look for a line that says x transactions are waiting to be added to QuickBooks. If there are any, click Transaction List. Click the down arrow in the Action column to handle the transaction:

3. See Who You Owe and Who Owes You

If you’re checking in with QuickBooks every few days, you’ll be able to spot trouble brewing ahead when you look at your receivables and payables. Deal with any immediate problems first, but anticipate what might transpire soon, too.

There are two ways to get a good overview of bills and invoices that are close to being late. For receivables, you can either:

Use the Income Tracker. Go to Customers | Income Tracker. Click on any of the colored bars representing, for example, Unpaid Open Invoices and Overdue Invoices. Click any of them and the list below displays only those transactions.

Run an A/R Aging Detail report. You’ll find this by opening the Reports menu and clicking Customers and Receivables.

To see who you owe, you can use a tool similar to the Income Tracker, the Bill Tracker (Vendors | Bill Tracker). Or create an A/P Aging Detail report (Reports | Vendors & Payables).

4. Look at Your Inventory Levels

This can’t be stressed enough: If your business sells products, you must keep a close watch on your stock levels. This isn’t as much of an issue if you make one-off sales, like mineral specimens or handmade baskets. But if you’re buying and reselling items, or you’re building them yourselves, you need to know when it’s time to re-order or boost production and when it’s time to discount and discontinue a poor seller. Open the Reports menu and click Inventory, then select Inventory Stock Status By Item. Pay special attention to the On Hand and Reorder Qty columns.

5. Deal With Past-Due Customers

Here’s one of your least favorite tasks: asking customers to catch up with their bills. Once you’ve determined that someone is behind by running a receivables report or looking at the Income Tracker, as mentioned earlier, it’s time to take action. Try not to let your collections tasks stack up. Here are some effective approaches:

Send statements. Open the Customers menu and click Create Statements. You’ll see a window like the one pictured below. Statements show outstanding debts and credited payments over a period of time.

Send automated reminders. This is a great tool that QuickBooks offers, but it’s complicated to set up. Contact the office for help walking through the process.

Get personal. Sometimes, just a phone call or a written note or postcard (handwritten if you have the time) can be very effective.

6. See Whether Payments Need to Be Deposited

You don’t want to leave money that customers have sent you languishing in the Undeposited Funds account. Open the Banking menu and click Make Deposits. In the window that opens, select the payments you want to include and click OK. Finish creating the deposit in the next screen and save it. Create a physical deposit slip and take it along with the checks and/or cash to the bank.

7. Take a Quick Look at Your Income vs. Expenses

Get a bird’s eye view of your finances. Click the Insights tab on the Home Page and look at the Profit & Loss graph. If you’re noticing a pattern of your expenses outpacing your income, it’s a good idea to explore QuickBooks’ cash flow tools. If you’re not familiar with them, contact the office to set up a session to go over them and get answers to any other questions, including aspects of the software that you might not feel confident about using.

Upcoming Tax Due Dates

June 16

Individuals: File a 2024 individual income tax return (Form 1040 or Form 1040-SR) or file for a four-month extension (Form 4868) if you live outside the United States and Puerto Rico or you serve in the military outside those two locations. Pay any tax, interest and penalties due.

Individuals: Pay the second installment of 2025 estimated taxes (Form 1040-ES) if not paying income tax through withholding or not paying sufficient income tax through withholding.

Calendar-year corporations: Pay the second installment of 2025 estimated income taxes, completing Form 1120-W for the corporation’s records.

Employers: Deposit Social Security, Medicare and withheld income taxes for May if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for May if the monthly deposit rule applies.

July 10

Individuals: Report June tip income of $20 or more to employers (Form 4070).

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