Publication 538 - Introductory Material
Every taxpayer (whether an individual or a business entity) must figure taxable income on an annual accounting period called
a tax year. The
calendar year is the most common tax year. Other tax years are a fiscal year and a short tax year which are discussed later.
Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income
and expenses. The most
commonly used accounting methods are the: (a) cash method; and (b) accrual method.
Under the cash method, generally you report income in the tax year in which you receive it; and you deduct expenses in the
tax year in which you
Under an accrual method, generally you report income in the tax year in which you earn it, regardless of when payment is received.
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 methods. In many cases you may have to refer
to the cited sources
for a fuller explanation of the topic.
This publication is not intended as a guide to general business and tax accounting rules. Section references are to the Internal
Revenue Code and
regulation references are to the Income Tax Regulations.
Comments and suggestions.
We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Business Forms and Publications Branch
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number,
including the area code, in
You can email us at
. (The asterisk must be included in the
address.) Please put “Publications Comment
” on the subject line. Although we cannot respond individually to each email, we do appreciate your
feedback and will consider your comments as we revise our tax products.
Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of
selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children
home by looking at the
photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
Useful Items - You may want to see:
Form (and Instructions)
Application To Adopt, Change, or Retain a Tax Year
Application for Change in Accounting Method
See How To Get Tax Help at the end of this publication for information about getting these publications and forms.