IRS Shock Wave About to Hit Small Businesses

In a surprise move, the IRS, without seeking input from small business owners and other interested groups, is preparing to release a new set of guidelines that will require many businesses with revenue over $1 million to use the accrual method of accounting. These guidelines are due to be released next week.

Current law requires that businesses with revenue over $5 million must use the accrual method of accounting. Most businesses with revenue that is beneath this threshold may opt to use the accrual method, or may use the cash method of accounting. Using the cash method, revenue is reported when it is actually received and expenses are reported when they are paid. If the accrual method is used, revenues are reported when earned, even if the money is not received. There are other differences between the two methods, including the reporting of accounts receivable and accounts payable.

Many small business owners do their own bookkeeping without the help of a professional. This change in rules may, at the very least, require small businesses to hire someone who can help them set up a new system and learn how to keep the books on an accrual basis.

You may like these other stories...

IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
Is it time to consider a value added tax?Forbes contributor Joseph Thorndike wrote yesterday that he believes the tax reform proposal by House Ways and Means Committee Chairman Dave Camp (R-MI) was dead on arrival. But he...
Read more from Larry Perry here and in the Today's World of Audits archive.The planning phase of an audit engagement of an entity using US GAAP or a special purpose framework will, with minor differences, include similar...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.