Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
Reporting Income for a Service Business
Most service businesses use the cash method of accounting for reporting income and expenses for two reasons:
- Simplicity.
- You don't pay taxes on income you have not actually received, which is in contrast to the accrual method of accounting where you are subject to taxes on income when it is earned as opposed to when it is actually received.
Figuring Gross Income Under the Cash Method
It's fairly straight forward to figure income under the cash method.
For each tax year you simply add up:
- Cash receipts.
- Checks received.
- Charge slips for items paid with a credit card.
- The fair market value (FMV) of property and services received for the year. Fair market value is the price at which property changes hands between a willing buyer and seller, both having reasonable knowledge of all material facts.
- Income constructively received, for example, interest credited to your bank account in December but not withdrawn until the following tax year.
Figuring Net Income for a Service Business
Once gross income is determined, simply subtract all ordinary and necessary business expenses from gross income to determine net income.
Cash Basis Taxpayers Who Using a Credit Card to Pay Business Expenses
If you're a cash basis taxpayer (most sole proprietors are) and use a credit card to pay for business expenses, the deduction may be claimed in the year of the purchase, regardless of when the credit card bill is paid. For example, if you charge the purchase of $300 worth of business supplies on your credit card during Decemeber and pay the December credit card bill in January, you may deduct the $300 in December (Revenue Ruling 78-39).
"The general rule is that when a deductible payment is made with borrowed money, the deduction is not postponed until the year in which the borrowed money is repaid. Such expenses must be deducted in the year they are paid and not when the loans are repaid." William J. Granan, 55 T.C. 753 (1971).