Cash vs Accrual Recordkeeping

Hello, June:

It is very nice to find this website to help us new self-employed guys. I am a full-time employee, and recently started to be a part-time contractor.

My problem is that I started working for that contract in Dec. 2007, but did not get my first payment until Jan. 2008. My question is: May I still be able to deductible some cost (like travel) for year 2007 (I do not think I will get a 1099 for year 2007)?

Thank you.
Laser
Minot, ND


Laser --

As long as you are in business to make money it doesn't matter whether you have yet received the money, you may deduct your business expenses.

There are two methods of recordkeeping: Cash or Accrual

As a self-employed in business you get to choose when to report your income and expenses. Don’t get too excited it’s not as liberal a choice as it sounds.

You may opt for a cash basis method of bookkeeping. This is one that claims income when it is received and deducts an expense when it is paid.

Or you may choose an accrual basis. This bookkeeping method claims income when the client is billed, regardless of when the client pays you. You deduct an expense when you become liable for it – which is usually when you get the bill.

You must use the same method for both income and expenses. The cash method is simpler and is used by most self-employeds.

There are examples of both methods in my book Self-employed Tax Solutions .

-- June