 Income tax 2021-2022, combination method. Get ready to get refunds to the max, diving into income tax 2021-2022. Most of this information can be found in Publication 334, Tax Guide for Small Business Tax Year 2021, Income Tax Formula, looking at line 1, the income line, which would be supported by another schedule in essence, an income statement, income and expenses. Expenses basically being deductions that net then flowing into the top line, the income line, also into the tax return first page form 1040, which we're seeing now. It would be going from the Schedule C, which is basically the income statement schedule that would then be going to the Schedule 1, then here to the first page of the form 1040 line number 8. This is the Schedule C profit and loss in essence and income statement. Now we're looking at a combination method talking about accounting methods here, and we've been going over the cash method and then the accrual method, and we talked about them in a little bit more depth. And we also now want to be thinking that usually oftentimes people are on more of a hybrid type of method, or you might be on a hybrid type of method. And in that case, once again, you would want to be making sure to mark that off on the tax return at the first point, at the first tax return, the first time you record the business or the Schedule C business on your taxes because you're going to need consistency after that point in time. So if you're using some kind of combination method, which is actually fairly common for small businesses, then you want to make sure that you note that. The reason you might have a combination method is because you're doing whatever is best for your particular business, and whatever you're doing on the bookkeeping side, then the general rule is that you would want to have the similar kind of thing that you're going to be doing on the tax side of things. So it's quite possible, for example, for people to be on, say, an accrual type of method, possibly they're tracking their revenue on an accrual method because they have to invoice clients because they don't get paid at the same point in time that they do the work because of the business or industry that they are in. And so that means they're going to track accounts receivable. That means they're typically recognizing revenue when they send the invoice, which is an accrual kind of component, accounts receivable being an accrual type of an account. But on the other side of things, on the payment side, maybe they're on more of a cash type of basis on that side. So that would be an example of kind of a combination method where you're using a little bit of both rules depending on the cycle or the activity that you are looking into. So we want to start not thinking of the cash and accrual method as if there are two poles that are completely different, but there's a spectrum and you could have different areas within it. So keeping that in mind, you can generally use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. So that's the key term. Consistency is the key term. And note that you want to have what's on your bookkeeping side, the general rule to be applied to what's on your taxes side, both because that's basically what the tax code is saying they want, and two, because you don't want to have two sets of books, obviously, that you're putting together for taxes, especially as a small business because that could be complicated. You want to make things easy. And so once you set it up, you want consistency. The IRS is going to be skeptical of non-consistency, because if you have non-consistency with these timing differences between cash method and accrual method or some combination of them, you can use that to try to alter the amount of revenue and expenses in any particular year. So however, the following restrictions apply. So here's the restriction. Yeah, you can do that except, okay, here's the exceptions. Combination method, if an inventory is necessary to account for your income, you must generally use an accrual method for purchase and sale. So there could be exceptions. See, however, inventories later. You can use cash method for all other items of income and expenses. So if you have inventory involved, usually you're tracking inventory on the books as an asset. That means that you're basically using an accrual method. The tax code recognizes that. So they kind of think you would generally want to use an accrual method there, but there might be an exception to that. But again, be careful if you have inventory, because you want to make sure that you're tracking the inventory correctly. And if you change methods in the future, then, again, that can cause kind of problems on the tax side of things. So usually you're on an accrual method when you're tracking the inventory. So if you use the cash method for figure your income, you must use the cash method for reporting your expenses. So you're going to have to basically have some consistency with the methods that are going to be used. If you're using an accrual method for reporting your expenses, you must use an accrual method for figuring your income. If you use a combination of methods that include cash method, treat that combination method as the cash method. One more time, if you use a combination method that includes the cash method, treat that combination method as the cash method.