In this video, we're going to talk about the different accounting methods that a corporation can use when filing its tax return. When initially creating a corporation, you will have a choice of three accounting methods. It's important to choose carefully because changing the accounting method in the future will require approval from the IRS. The three options are accrual basis accounting, cash basis accounting, or a hybrid approach. A hybrid approach incorporates elements of both accrual and cash basis accounting. For example, under a hybrid approach, you might use the accrual-based method for receivables, payables, and revenue, but the cash basis method for everything else. Most large C corporations use the accrual basis method for taxes, as there are restrictions on using cash basis or hybrid approaches for certain types of corporate taxpayers. There is a general rule that states you must use the accrual method unless exceptions apply. One exception is if you qualify as a personal service corporation. More details on personal service corporations will be covered in another video. Additionally, if you have a family farm or annual gross receipts of less than five million dollars, you are not obligated to use the accrual method. However, there are specific details and exceptions for these categories, which can be found in section 448 of the Internal Revenue Code. For example, certain types of family farms may qualify for exceptions. Furthermore, regarding annual gross receipts, the IRS will assess your average annual gross receipts over a three-year period. If you have only been in business for one year, they will look at that year specifically. The aim here is to determine if your small corporation qualifies for using an alternative method. Another exception is if you choose to be an S corporation, which is a separate type of corporation. By electing S...
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Video instructions and help with filling out and completing What Form 1120 Reit Accounting
