There are two different methods for calculating income and limits on what sources of income use. These two methods determine when you will be taxed on certain income.
- Cash Method: The cash method of accounting all amounts of income are included when they are received and all deductions when paid. Income from an office or employment is required to use the cash basis.
- Accrual Method: The accrual method of accounting for income includes income in the periods in which it is earned which may be different from when it was received. This method must be used to calculate income from business and property.
If you receive employment income, it is important to note that any arrangement you may have with your employer to defer salary to a future tax period is considered taxable in the current tax year. For example, if your employer agrees to pay you your bonus next year, it would normally be considered taxable in the current tax year.
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