The cash method of accounting, which lets a business recognize sales when cash is received, is attractive to many small businesses due to its simplicity. For tax years beginning after 2017, the ability to use the cash method is greatly expanded. Any entity (other than a tax shelter) with three-year average annual gross receipts of $25 million or less can use the cash method regardless of whether the purchase, production, or sale of merchandise is an income-producing factor.
Thanks to this favorable rule, a business may be eligible to adopt cash method accounting. You will need to determine whether your clients’ average annual gross receipts are $25 million or less. If they are, and if a change would be beneficial, you can assist your clients in filing the appropriate paperwork with the IRS to change their accounting method.