10 – Accounting Methods When Filing Form 1040 (U.S. Individual Tax Return)
📘 Accounting Methods When Filing Form 1040 (U.S. Individual Tax Return)
When reporting income and expenses, the IRS allows individuals to use one of the following accounting methods:
1️⃣ Cash Method (Most Common)
✅ Income is reported when received
✅ Expenses are deducted when paid
🧾 Simple and ideal for employees, freelancers & small businesses
2️⃣ Accrual Method
📊 Income is reported when earned (even if not received)
📉 Expenses are deducted when incurred
🔍 Typically used by businesses with inventory or complex operations
3️⃣ Hybrid Method
🔄 A mix of cash & accrual
📦 Common for businesses tracking inventory
(e.g., accrual for sales, cash for expenses)
🔄 Note: Once selected, your accounting method must be used consistently.
📄 To change it, file Form 3115 – Application for Change in Accounting Method
