Smart Can The Balance Sheet Be On A Tax Basis

At a minimum reconciliations of material deferred tax balances and a proof of income taxes payable should be completed.

Can the balance sheet be on a tax basis. The new rules mandate that the capital accounts shown on the K-1s be reported on the tax basis. This affects many things such as basis in case the company is sold or goes out of business but also the shareholders can. Just because the tax return is using cash basis doesnt change the official records.

The first is dividends paid pre-tax dividends from the cash flow distribution that can bring the balance to below zero. You would likely see a negative balance for the Sales Tax Payable account in the Balance Sheet report if you pay on accrual basis and run the report on cash basis. This entry can be computed by subtracting the previous years book-basis balance sheet from the previous years.

No such reconciliation is required if Schedule L is not reported on the tax basis. The second is suspended losses that are computed after the excess dividends. Tax basis balance sheets follow the same format as regular balance sheets but are designed as if they were prepared for tax purposes.

Originally the new rules applied to tax year 2019 taxable years that began on or after January 1 2019. If the partnerships balance sheet Schedule L is reported on the tax basis and if the aggregate of the partners beginning and ending capital accounts differ from the amounts reported on Schedule L attach a statement reconciling any differences. The companys books and records are the OFFICIAL records.

Therefore for periods other than P12 you must calculate the tax basis in columns 6-8 to derive an actual tax basis balance sheet. The Tax Basis Balance Sheet can be used to enter adjustments and the actual tax basis of assetsliabilities based on the return as filed. This means that there are no accounts receivable or accounts payable to record on the balance sheet since they are not noticed until such time as they are paid by customers or paid by the company respectively.

Adjust the trial balance to reflect the previous years book-to-tax adjustment. Tax basis balance sheets provide managers with the current deferred tax liability of a company assuming all assets were sold at their current value value and all liabilities could be paid off at the value reported in the balance sheet. A balance sheet is a snapshot of a particular point in time normally at specific points through the year and at the end of the tax year.