In the United States, privately held, non-regulated businesses generally are not required by federal law to keep “GAAP” financial statements. What the IRS does require is that your books and records clearly reflect income and support what you put on your tax returns. This article explains who can use a simple income–expense (cash-basis) bookkeeping approach, how it works, and how those numbers flow into U.S. tax filings. You’ll also see how this differs from accrual/GAAP bookkeeping.

Who may (or must) use a simple income–expense (cash) system?

IRS rule of thumb: Use any bookkeeping method that clearly reflects income and that you use consistently. If your method doesn’t clearly reflect income, the IRS can require a different one. :contentReference[oaicite:0]{index=0}

Who commonly uses cash-basis “income–expense” bookkeeping?

• Sole proprietors and single-member LLCs filing Schedule C.
• Many partnerships, S-corps, and C-corps that qualify as a “small business taxpayer” under the gross receipts test (average ≤ $31 million for tax years beginning in 2025; indexed annually). :contentReference[oaicite:1]{index=1}
• Businesses without inventory or those that qualify for simplified inventory rules available to small business taxpayers. :contentReference[oaicite:2]{index=2}

Who may need accrual (or a hybrid) instead?

• Businesses that do not meet the small-business gross-receipts test and must use accrual for purchases/sales of inventory. :contentReference[oaicite:3]{index=3}
• Specific industries with statutory methods (e.g., certain C-corp farming under §447 unless qualifying as small). :contentReference[oaicite:4]{index=4}

How the income–expense (cash) approach works

Core idea

On the cash method, you generally record income when received and deduct expenses when paid. Keep all source documents (invoices, receipts, bank/processor reports) so totals are traceable. :contentReference[oaicite:5]{index=5}

Minimum IRS expectations for your books

• Your method must clearly reflect income; use it consistently. Changes usually require IRS consent (Form 3115). :contentReference[oaicite:6]{index=6}
• You must maintain records and keep them available for inspection for as long as they may matter for tax administration. :contentReference[oaicite:7]{index=7}
• Suggested retention periods: generally 3 years (longer for certain items) and 4+ years for employment tax records. :contentReference[oaicite:8]{index=8}

Typical income & expense categories in cash books

• Income: cash, checks, card payments, platform payouts (e.g., PayPal/Stripe).
• Expenses: cost of goods/materials, subcontractor/contractor payments, rent, utilities, payroll, taxes and licenses, depreciation, mileage, etc.
• Special cash reports: Cash receipts over $10,000 in a trade or business require Form 8300 within 15 days. :contentReference[oaicite:9]{index=9}

From books to the IRS tax return: which forms get what?

Sole proprietor / single-member LLC (disregarded)

• Schedule C (Form 1040): Cash-basis income totals → Gross receipts; paid expenses by category → Deductions. (See Pub. 583 for setup.) :contentReference[oaicite:10]{index=10}
• Estimated tax (Form 1040-ES) and, if applicable, self-employment tax via Schedule SE.

Partnership (multi-member LLC)

• Form 1065 reports the business totals; each partner gets a Schedule K-1 showing their share. :contentReference[oaicite:11]{index=11}

S corporation

• Form 1120-S for the entity; each shareholder receives a Schedule K-1. :contentReference[oaicite:12]{index=12}

C corporation

• Form 1120 (corporate income tax return) based on the corporation’s books. :contentReference[oaicite:13]{index=13}

Information returns and payroll, fed-level highlights

• Contractors: Issue Form 1099-NEC for services ≥ $600; furnish to payee and file with IRS by Jan 31. Collect W-9s; apply 24% backup withholding when required. :contentReference[oaicite:14]{index=14}
• Third-party platforms (your processors): may issue you Form 1099-K. IRS is phasing thresholds: >$5,000 for 2024, >$2,500 for 2025, >$600 from 2026; you must report all taxable income regardless. :contentReference[oaicite:15]{index=15}
• Employees: Withhold/submit payroll taxes; file Form 941 quarterly, Form 940 annually, and furnish/file W-2/W-3 by Jan 31. :contentReference[oaicite:16]{index=16}
• Large cash receipts: Form 8300 within 15 days for cash > $10,000. :contentReference[oaicite:17]{index=17}
• E-file mandate: If you file 10+ information returns in a year (aggregated), you generally must e-file. :contentReference[oaicite:18]{index=18}
• International-related (common cases): Form 5472 for 25% foreign-owned U.S. corps / foreign-owned disregarded entities with reportable transactions; Form 5471 for U.S. persons with certain foreign-corp interests; FBAR (FinCEN 114) for foreign accounts > $10,000 aggregate. :contentReference[oaicite:19]{index=19}

Cash-basis income–expense vs. accrual/GAAP bookkeeping (short comparison)

• Recognition: Cash records when money moves; accrual records when earned/incurred. :contentReference[oaicite:20]{index=20}
• Complexity: Cash is simpler; accrual requires tracking receivables, payables, and often inventory.
• Tax method fit: Small business taxpayers can often choose cash (even with inventories under simplified rules); larger/inventory-intensive businesses may be pushed to accrual or hybrid. :contentReference[oaicite:21]{index=21}
• External users: Lenders/investors may request GAAP statements even though most private firms aren’t federally required to keep GAAP books.

Recordkeeping, retention, e-filing and information-return duties

• Keep books and source docs that substantiate all income and deductions; keep them as long as they matter for tax, generally ≥3 years (and ≥4 years for employment tax records). Electronic records are fine if complete and accessible. :contentReference[oaicite:22]{index=22}
• W-9s & backup withholding: Request W-9s from U.S. payees; if missing/invalid or IRS instructs, withhold 24% and report. :contentReference[oaicite:23]{index=23}
• Information returns deadlines (typical): 1099-NEC to recipient & IRS by Jan 31; 1099-MISC to recipients by Jan 31 and to IRS by Feb 28 (paper) or Mar 31 (e-file). :contentReference[oaicite:24]{index=24}
• E-file when required: If you have 10+ information returns across types, e-file is mandatory. :contentReference[oaicite:25]{index=25}

Sources

• IRS Publication 583 (recordkeeping); IRC §6001 (books/records). :contentReference[oaicite:26]{index=26}
• IRC §446 and Treas. Reg. §1.446-1 (accounting methods). :contentReference[oaicite:27]{index=27}
• IRS Pub. 538 (cash vs. accrual; inventory simplifications). :contentReference[oaicite:28]{index=28}
• Record retention guidance. :contentReference[oaicite:29]{index=29}
• Form 8300 (cash > $10,000). :contentReference[oaicite:30]{index=30}
• 1099-NEC/MISC instructions; W-9/backup withholding (24%). :contentReference[oaicite:31]{index=31}
• Form 1099-K phased thresholds (Notice 2024-85). :contentReference[oaicite:32]{index=32}
• W-2/W-3, 941, 940 deadlines. :contentReference[oaicite:33]{index=33}
• E-file threshold (10 returns). :contentReference[oaicite:34]{index=34}
• Small business taxpayer threshold (2025 = $31M). :contentReference[oaicite:35]{index=35}
• Partnerships 1065; S-corps 1120-S; C-corps 1120. :contentReference[oaicite:36]{index=36}
• International info reports: 5472, 5471; FBAR/FinCEN 114. :contentReference[oaicite:37]{index=37}