Perspectives

State tax implications of accounting method changes

General impact on federal & state taxation

​The purpose of this article is to summarize various state compliance requirements and highlight certain situations where an accounting method change that produces different federal and state tax effects may potentially present an opportunity for tax savings.

​Accounting method changes

Federal accounting method changes are an often overlooked area by state tax professionals. Tax professionals sometimes assume an election to change the method of accounting for a particular transaction or item of income or expense will be followed for state tax purposes with no unique ramifications apart from the federal tax implications. In many states this is true; however, there are exceptions. These exceptions can create traps for the unwary as well as potential missed opportunities. The purpose of this article is to summarize various state compliance requirements and highlight certain situations where an accounting method change that produces different federal and state tax effects may potentially present an opportunity for tax savings.

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