Basis of accounting for tax purposes

[LCP]

Is any consistent accounting method allowable? Is there actually a "modified-cash" basis that is defined?

One thing that I think is common with a cash basis business is to deduct payroll taxes on the accrual basis since they are so easy to get from the payroll tax returns.

[Uncle Sam]

Basis of Accounting for tax purposes

I've been preparing tax returns that way for years - but I believe that
is a modified-cash basis.

[Maribeth]

Wow, I too have been doing tax returns & financials for years -- since 1981. I have never, ever knowingly deducted employer-portion of payroll taxes until paid on a cash basis taxpayer. Wow, that is a new one on me.

Maribeth

[JohnH]

If payrolls average about the same amount each year, then it really doesn't matter much except in the first year and last year of operation. The beginning adjustment and the ending adjustment (or reversing and adjusting journal entry for accounting purists) pretty much offset one another in any given year. It might be more significant if December payrolls are vastly different from one year to the next.

[JG EA]

I've posted about this before, but apparently feel the need to justify my position on this subject again.. Trying to keep this straight, ESPECIALLY when the taxpayer is doing payroll, has been a nightmare. So, I decided years ago just to report it all in one year for my own sanity. I never disregard laws when doing taxes unless I can demonstrate that it is not a disregarding, but rather a practical step to account for expenses even more accurately. You start putting those payments to state unemployment, and "matching" FICA in the next year and it is a exercise in complication. As John said it all comes out in the wash. Quickbooks (as you know) reports it all in one year. Maybe if I had only one or two payrolls I might do it differently.

[taxxcpa]

Accruing payroll tax

Technically it may be improper to accrue the employer's share of FICA, but I do it since it makes the tax payable match the tax paid when filing form 941. It would have such a minor effect unless the year-end accrual was very much different than the prior year's.