What are the advantages of cash basis accounting?

What are the advantages of cash basis accounting?

Gregg Wind (Partner, Wind Bermer Hockenberg, LLP) gives expert video advice on: Do I need to separate my personal and business financial records?; What are the advantages of cash basis accounting? and more...

The obvious benefit of being a cash basis taxpayer is that the tax follows the cash. An accrual basis taxpayer sometimes ends up paying tax on money that hasn't yet been received--we call it "accounts receivable." Whereas, a cash basis taxpayer has received money and is paying the tax out of the money received, so there's less of a chance of being caught short. If you're a cash basis taxpayer and you want to lower your tax bill, it's always a good idea to try to get all of the bills paid at the end of the year, to the extent you can. If you're working with clients and you're willing to extend terms to them so that they could maybe pay you in a subsequent year, you may be able to reduce your tax liability a little bit.