What's the difference between the Income Statement and Tax Report?

The purpose of the income statement is to track all money going in and out of your business for a particular time period. For inventory costs, that means the income statement shows your total spent on new inventory based on the purchase date. Cost of goods sold (COGS) is not included on the income statement, because that value only considers your inventory costs for those items that have sold during the time period selected based on the sale date. For example, just because you sold an item in 2025 doesn't mean you paid to acquire it in 2025. Additionally, many items you paid to acquire in 2025 may not have sold, and you still want to account for those costs when understanding all money going in and out of your business for that time period.

The tax report, on the other hand, was built specifically to help you file your taxes, which means there are subtle differences between it and the income statement. For example, the tax report supports both inventory accounting methods: cash and accrual. It shows your starting inventory costs, ending inventory costs, total spend on new inventory, as well as cost of goods sold. The tax report does not make any assumptions about the inventory accounting method you use for tax purposes, so you can choose to include total spent on new inventory or cost of goods sold depending on whether you use the cash or accrual inventory accounting methods when filing your taxes.

If you wish to compare numbers between the income statement and the tax report, you can to take your business income number on the tax report and subtract your business expenses, and then subtract your total spent on new inventory. When you do that, your tax report will produce a net return which matches exactly your income statement for the same time period

Non-cash expenses

Marking an expense as non-cash allows you to record expenses for tax purposes that you don't pay for directly with money. The most common example is when you log tax deductible mileage.

The tax report will show expenses from your Ledger marked as non-cash, while the income statement ignores non-cash expenses because those were not technically paid for and did not negatively impact your income.