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Need Some Deductions for 2011?
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Updated for 2011
Income
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Reporting Income for a Service Business
Most service businesses use the cash method of accounting for reporting income and expenses for two important reasons:
- It's simple.
- You don't pay taxes on income you have not actually received since you don't report income until it is actually received.
Figuring Gross Income Under the Cash Method
Figuring gross income under the cash method of accounting is fairly straight forward.
For the tax year you simply add up:
- Cash receipts.
- Checks received.
- Charge slips for items paid with a credit card.
- The fair market value (FMV) of property and services received for the year.
- Income constructively received
- For example:
- Interest or other income credited to your business account in December but not withdrawn until the following tax year.
- Checks received in December not cashed until the following tax year.
- For example:
Fair market value: The price at which property changes hands between a willing buyer and seller, both having reasonable knowledge of all material facts.
Figuring Net Income for a Service Business
Once gross income is determined, simply subtract all ordinary and necessary business expenses from gross income to determine net income.
Next:
Income: Reporting Income for a Merchandise Business; Cost of Goods Sold for a Merchandise Business
Related Links
- What is Income?
- What is Adjusted Gross Income (AGI)?
- Adjusted Gross Income May Limit Certain Deductions
- What is Taxable Income?
- Reporting Income for a Manufacturing Business
- Cost of Goods Sold for a Manufacturing
- Reporting Income for a Manufacturing Business
- Rental Income
- Bartering Income
- Debt Cancellation Income
- Investment Income
- Miscellaneous Income
Copyright © 2008-2012 Larry Villano. All rights reserved.