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In: Accounting

Describe when a cash basis taxpayer must recongize gross income for tax purposes.

Describe when a cash basis taxpayer must recongize gross income for tax purposes.

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Expert Solution

A cash basis tax payer is a taxpayer who reports income and deduction in the year that they are actually paid or received . Cash basis tax payers can not reports receivables as income , nor deduct promissory notes as payments.

All individual and business taxpayers are required to pay taxes on their income every year .A consistent accounting method must be used to report income and taxes for any given tax year . The two accounting method must be use by taxpayer in reporting income are the accrual method and cash method .

Taxpayers who use the accrual method must report income in the year it is earned , not received .Like wise , expenses must be deducted in the year they are incurred , not paid off or settled.

A cash basis taxpayer reports income and deduction in the year that they are actually paid or received .

A cash basis taxpayers deducts expenses in the year they are paid off , which is not necessarily the year they were incurred.

ekkarill92 answered 2 years ago
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