Contents
Introduction ........................................
1
User Fees ............................................
2
Accounting Periods
Calendar Year .................................
2
Fiscal Year ......................................
2
Short Tax Year ...............................
2
Improper Tax Year ..........................
3
Change in Tax Year .......................
3
Partnerships, S Corporations, and
Personal Service Corporations
4
Corporations ...................................
7
Excise Tax Periods .........................
8
Employment Tax Periods ...............
8
Accounting Methods
Cash Method ..................................
8
Accrual Method ...............................
9
Inventories ......................................
12
Change in Accounting Method .......
15
How To Get More Information ..........
16
Index ....................................................
17
Introduction
Each taxpayer (business or individual) must
figure taxable income on an annual account-
ing period called a tax year.
The calendar
year is the most common tax year. Other tax
years are the fiscal year and, under certain
conditions, a short tax year.
Each taxpayer must also use a consistent
accounting method, which is a set of rules for
determining how and when to report income
and expenses. The most commonly used ac-
counting methods are the cash method and
an accrual method. Under the cash method,
you generally report income in the tax year
you receive it and deduct expenses in the tax
year you pay them. Under an accrual method,
you generally report income in the tax year
you earn it, regardless of when payment is
received, and deduct expenses in the tax year
you incur them, regardless of when payment
is made.
This publication explains some of the rules
for accounting periods and accounting meth-
ods. In many cases, however, you may have
to refer to the cited sources for a fuller ex-
planation of the topic. Section references are
to the Internal Revenue Code and regulation
references are to the Income Tax regulations
under the Code.
This publication is not intended as a guide
to general business and tax accounting rules.
Useful Items
You may want to see:
Publication
m 541
Partnerships
m 542
Corporations
Form (and Instructions)
m 1128 Application To Adopt, Change, or
Retain a Tax Year
m 3115 Application for Change in Ac-
counting Method
Department
of the
Treasury
Internal
Revenue
Service
Publication 538
(Rev. April 1999)
Cat. No. 15068G
Accounting
Periods and
Methods
