You report your business income based on a fiscal period. A fiscal period is a period between the day your business starts its business year to the day it ends. For an existing business, the fiscal period is usually 12 months. A fiscal period cannot be longer than 12 months. In some cases, it can be shorter.
Self-employed individuals have to use a December 31 year-end. Eligible individuals may use another method of reporting their income. Their fiscal period may end on a day that is not December 31. If your fiscal year-end is not December 31, you will need Guide RC4015, Reconciliation of BusinYou report your business income based on a fiscal period.
A fiscal period is a period between the day your business starts its business year to the day it ends. For an existing business, the fiscal period is usually 12 months. A fiscal period cannot be longer than 12 months. In some cases, it can be shorter. Self-employed individuals have to use a December 31 year-end. Eligible individuals may use another method of reporting their income. Their fiscal period may end on a day that is not December 31.
If your fiscal year-end is not December 31, you will need Guide RC4015, Reconciliation of Business Income for Tax Purposes, to help you calculate the amount of business income to report on your income tax return.
Accrual method
In most cases, self-employed individuals report their business income using the accrual method of accounting.
With this method, you:
■ report your income in the fiscal period you earn it, regardless of when you receive the income; and
■ deduct expenses in the fiscal period you incur them, whether you paid them in that period or not.
Incur usually means you either paid or will have to pay the expense.
Income from professional activities is business income.
Therefore, you report it using the accrual method.
Cash method
If you are a self-employed commission salesperson, you can use the cash method to report your income and expenses.
With this method, you:
■ report income in the fiscal period you receive it; and
■ deduct expenses in the fiscal period you pay them.
