Tax Year and Accounting Methods
As a small business owner, you frequently make business decisions that may have tax implications — whether or not you realize it at the time. For example, you might choose to purchase a car for use in your business, rather than leasing it. The consequences of this decision affect your taxes. You can't deduct the purchase price of the car, but you will be able to deduct a portion of the cost each year as depreciation. When you sell the car, you'll have to account for a tax gain or loss. But after this, from a tax viewpoint, you're through with the transaction. You can choose to lease your next business car, if you wish.
However, there are some tax-related choices that tend to have a more general effect on how you determine your business income, and possibly even how you run your business. Often, once made, these choices are more or less permanent — you may not be able to change without the IRS's permission, which may be difficult to get. While some of these decisions may seem rather technical, they can have a significant effect on your tax situation and you should have a basic understanding of the issues at stake.
The most commonly encountered decisions of this nature that you'll need to make are:
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