Accounting   Periods and   Methods

taxmap/pubs/p538-000.htm#TXMP3f41826c
Introduction

Each taxpayer (business or individual) must figure taxable income on an annual accounting period called a tax year. The calendar year is the most common tax year. Other tax years are a fiscal year and a short tax year.

Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it, regardless of when payment is received, and deduct expenses in the tax year you incur them, regardless of when payment is made.

This publication explains some of the rules for accounting periods and accounting methods. In many cases, however, you may have to refer to the cited sources for a fuller explanation of the topic. Section references are to the Internal Revenue Code and regulation references are to the Income Tax Regulations.

This publication is not intended as a guide to general business and tax accounting rules.

taxmap/pubs/p538-000.htm#TXMP51236875 Comments and suggestions.

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Useful items

You may want to see:

See How To Get Tax Help near the end of this publication for information about getting these publications and forms.

taxmap/pubs/p538-000.htm#TXMP6bba30f8 User Fees

User Fee

The IRS charges a user fee for certain requests to change an accounting period or method. The fee is reduced in certain situations, such as a request for identical accounting method changes for members of a consolidated group, a request involving a personal tax issue from a person with gross income of less than $250,000, and a request involving a business-related tax issue from a person with gross income of less than $1 million. No fee is charged for changes permitted to be made by a published automatic change revenue procedure.

For information about user fees charged to change an accounting period, see the Form 1128 instructions. For information about user fees charged to change an accounting method, see the Form 3115 instructions. See also Revenue Procedure 2004–1, in Internal Revenue Bulletin No. 2004–1, or its successor, for more information. For information on user fees for tax-exempt organizations, see Revenue Procedure 2004–8, in Internal Revenue Bulletin No. 2004–1, or its successor.

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