Cash Basis Taxation

[JudyL]

I had asked a question on another forum about reporting taxation for a cash basis taxpayer.

A number of extremely knowledgeable sources kept reporting principles based on accrual accounting - namely that if cash increased due to changes in a balance sheet item, then it is a wash. That I need to take Accounting 101.

I was even told that increasing cash does not affect taxable income. Even for a cash basis taxpayer.

Am I losing my mind? I thought that what "cash basis" taxation was all about.

As everyone here will see if they visit the unofficial ATX forum, every member's answer that you received in that topic, and now here too, gave you the correct answer: that receiving loan proceeds does NOT increase taxable income and each tried to explain why. Also, ALL of the answers you received did address your question in terms of cash basis tax reporting, not accrual.

Did you forget that there is overlap of members across these professional forums? I don't mind that people ask the same questions on multiple sites, but I find it rather rude and insulting of you to come on this or any other site and state that those of us that took the time to try to help you did not address your question properly and gave you incorrect answers when, in actuality, it is you that didn't understand the concepts or the answers that were provided. You can be sure that you will receive no further help from me on any forum, no matter what other name you may post under either!

[Snaggletooth]

There was on my part, a curiosity why a increase in some liabilities (such as loans) did not change cash basis taxation, and an increase in other liabilities (such as accounts payable) actually would change cash basis taxation. I believe that is a natural curiosity from one who does not know the answer. I first asked the question on another forum, and kept getting answers related to accrual-based accounting, and kept getting told I need to take Accounting 101. After not getting an explanation other than accrual accounting, I brought the question to this forum.

Apparently a change in some balance sheet items will not affect cash basis taxation, and some items will. Apparently loans do not, capital expenditures do not, historically inventories would not (although it appears this changed in 2018). Some of the members who can access both forums are incensed that I asked the same question here, and I can't help that.

There may be a presupposition that I am using a different name in order to disguise my double-access of forums. I have had this name on this forum since 2005, and use a different name on the other forum. I'm not trying to hide anything.

[JudyL]

There was on my part, a curiosity why a increase in some liabilities (such as loans) did not change cash basis taxation, and an increase in other liabilities (such as accounts payable) actually would change cash basis taxation. I believe that is a natural curiosity from one who does not know the answer. I first asked the question on another forum, and kept getting answers related to accrual-based accounting, and kept getting told I need to take Accounting 101. After not getting an explanation other than accrual accounting, I brought the question to this forum.

That is simply NOT true! On the other forum, your original question was solely concerning loan proceeds and its effect on cash basis taxable income. EVERYONE in that topic gave you correct answer to the question you posed. It wasn't until further into the post that YOU brought accrual basis into the mix with your interjection asking about cash flows, "cash equivalents", and acounting for changes in balance sheet accounts including accts receivable, accts payable. From one of your comments later into the discussion there, it was clear that you were using accrual basis FINANCIAL STATEMENT ACCOUNTING REPORTING concepts that appeared to be one of the sources of your confusion, NOT THAT YOU WERE BEING GIVE INCORRECT ANSWERS!

Some of the members who can access both forums are incensed that I asked the same question here, and I can't help that.

No, and I said from the start that I don't mind members asking questions across multiple sites, and I realize that happens sometimes. It is because you came here and said that we gave incorrect answers and on accrual basis, which was also NOT true. It is that YOU did not understand the very basic answers given, just like you didn't understand the answers from some of the members here and probably still don't.

There may be a presupposition that I am using a different name in order to disguise my double-access of forums. I have had this name on this forum since 2005, and use a different name on the other forum. I'm not trying to hide anything.

Uh huh, and you've also been known to use many other names which have also been discussed here before and other the other forum because you supposedly don't know how to log in from a difference device than the one where you initially set up a username, and that has also been explained to you also, both here and by several people on the other forum as well.

[Snaggletooth]

This is all a matter of perspective. One can read and make their own decisions.

[Lion]

If you want perspective, go to a forum about attitudes and points of view. You asked about tax accounting which is rule-based, facts & circumstances, tax law. We gave you accounting principles and tax law. I can read. My decision is that you disrespected me and all the people that tried to help you on at least two different tax preparers' forums.

[Uncle Sam]

I thought that we have some rules of discipline on this board regarding posting and response behavior. That's what the monitors' jobs are supposed to be for - in their judgment it's their decision on how to
react when certain others' behavior gets out of hand.
It's quite interesting to note the hypocrisy that the first person to be hostile in challenge the original posters' repetitive behavior - whether right or wrong - was mighty quick some years ago when I was on "that other board" in
chastising another cute one on that board with multiple identities when exasperating type posts by threatening me with a "point" for discipline before throwing me off the board. With that threat - I stopped using that board. Is that what this poster wants to do here - be unruly here and chase others away?

[Snaggletooth]

Sam, the unfortunate history was the TMI moderators had too much to do to spend time reading all the posts and discerning whether they were proper or not. At one time, this board was incredibly active, with hundreds of members who posted frequently. Just to be honest, there were two or three members who were smart-aleck acting, and criticized and made fun of others. The moderators did not stop or curtail their activity.

Dozens of active members migrated to the "other" board where these hateful people were not there. I knew about a dozen of these members personally and consider them my friends. Those people who migrated were treated much better on that "other" board and have been there ever since. The damage to the TMI board became apparent, as the activity here is maybe 10% of the activity on the other board of which you speak.

This is a shame because I have known the owners and writers of TMI since they started in 2005. The truth is that most of the people have been treated well on the other board, and I'm sorry you had problems. I myself had very little problem until the current posts, by people who are entitled to their own feelings.

I appreciate your knowledge, and in spite of anything else going on, I believe I am speaking the truth above.

[JudyL]

by threatening me with a "point" for discipline before throwing me off the board. With that threat - I stopped using that board. Is that what this poster wants to do here - be unruly here and chase others away?

No, ESG, that is not my intention. As moderator on the other forum, I gave you a warning point in 2018 for personally attacking a founding member that you took exception to, and another warning in 2019 for personally attacking this very same person aka Snaggletooth here, Edsel, Cordoroy Frog, etc. That warning point system is totally automated and requires acknowledgement of the warning in order for the offending member to post again, a process which I do not control and which you chose to not follow through with in 2019 when you left.

The only users I've ever personally manually banned have been bots, overseas spammers, and the occasional few nonprofessionals that stumble upon the site. There was actually one professional about 10 years ago that was so disruptive to the entire forum that the moderators and the owner of the forum as a group all agreed and decided to ban, and it was the owner that took care of that former member who was from a far southeastern state. FWIW, that person was also banned from the official ATX forum.

[Uncle Sam]

Moderate the other forum then - leave this one alone. I chose not to continue on your forum because YOU as the moderator didn't see how offensive the behavior on your board was by some to innocent users.
You've got your power and glory on the other forum - don't destroy the harmony on this board that you DON'T control.
Go chastise this person on YOUR forum. Air your dirty laundry on your own forum.

[Anarchrist]

At one time, this board was incredibly active, with hundreds of members who posted frequently.

A dozen years ago the board was changed from open to restricted to current purchasers of TheTaxBook. At that point you needed a code printed on the inside cover of TheTaxBook to post on this forum. Activity on this forum dropped to a small percentage of what it was the prior year due to that change.

[Maribeth]

No it won't - borrowing increases the liability section of the balance sheet - it doesn't effect profit and loss.


Let's pose the same results in another way. Suppose the company owes $10,000 to various Accts Payable creditors that should be paid by the end of the year. Instead of paying these creditors, payment is postponed until January 2nd. So their liability section of the balance sheet is increased, much the same way as if they had borrowed the money.

If this company is a cash basis taxpayer, is their taxation increased? If not, then what effect on cash really makes any difference??

---

In this situation, yes, you will have an effect on taxable income. In this situation, you have maintained your books on an accrual basis -- you have accts payable on your books. When you prepare the tax return, you must convert your accrual-basis books to cash basis books. When you do that, your taxable income/loss will change.

If you only borrow money at the end of the year on a loan from a lending institution, there will be no effect on taxable income. You will have increased your liabilities and you have increased your cash --- both balance sheet items, and not income statement items.

[Snaggletooth]

Thank you Maribeth. I was adamant that I could not distinguish between a Loan and any other Liability. Even though that was pointed out, I didn't know why there was a difference, so I asked the same question multiple times. Apparently, changes in Loans do not alter cash basis taxation, but changes in Accts Payable, Accrued Payroll, Vacation balances, etc. do change Cash basis taxation.

Much as changes in fixed assets do not change cash basis taxation either. In such fashion, some balance sheet accounts can change taxation, and others cannot.

In 2018, taxpayers with under $25 MM were permitted to begin reporting on cash basis without approval of IRS, and many took advantage of this. A typical company would carry their books on GAAP-endorsed Accrual Method, report the accrual method on Schedule L, and account for the difference on Schedule M-1.