Choosing between the cash and accrual methods of accounting can significantly impact your business’s tax obligations and cash flow. Evaluating the best tax accounting method for your business is essential. While many small businesses qualify for the cash method—especially after the Tax Cuts and Jobs Act (TCJA) expanded eligibility—some businesses may still benefit more from the accrual method.
What Changed Under the TCJA?
The TCJA simplified the definition of a “small business” by increasing the gross receipts threshold to $25 million (adjusted for inflation). In 2025, that threshold is $31 million, giving more businesses the flexibility to choose between methods. Small businesses may also qualify for additional tax advantages, including simplified inventory rules and exemption from interest deduction limitations. In light of these changes, assessing and evaluating what is the best tax accounting method for your business is more crucial than ever.
Cash vs. Accrual: Key Differences
The cash method allows income and expenses to be recognized when money changes hands, offering more control over tax timing and potentially better cash flow. The accrual method, on the other hand, recognizes income when earned and expenses when incurred. This makes it useful for businesses with large receivables or accrued expenses. When comparing, it’s helpful to consider which is the best tax accounting method suited for your business needs.
Is a Switch Right for You?
Switching accounting methods requires a strategic look at your business’s finances. Companies using GAAP for financial reporting, for instance, must use the accrual method. However, they can still use the cash method for taxes, if approved by the IRS. Dual reporting can be complex but worthwhile if tax savings are significant. Thus, evaluating thoroughly the best tax accounting method for your business may reveal considerable benefits.
To determine what’s best for your business, consult with a qualified advisor. Contact Verity CPAs at in**@****ty.cpa or 808.546.5026 to review your accounting method and maximize tax advantages. Reviewing and evaluating the best tax accounting method for your business could help you unlock greater savings and financial flexibility.