Discussion:Change in Accounting Method
From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
(Difference between revisions)
| Revision as of 22:23, 15 May 2008 RoyDaleOne (Talk | contribs) (Sheldon: I wond) ← Previous diff |
Current revision Sheldon (Talk | contribs) (Thanks for your) |
||
| Line 15: | Line 15: | ||
| }} | }} | ||
| + | |||
| + | {{ForumReplyPost|UserID=Sheldon|Date=9 June 2008|Text=Thanks for your input RoyDaleOne! And you were quick, but I have put off dealing with this client until today and decided to look again. This client is in the printing design business. I am going ahead today and just believing the prior preparer and the client that they have always filed the same way. It appears to me that they have always filed accrual basis and shown the method box as cash. It was strange to me, but the prior preparer said she would back up her word that she just checked the wrong accounting method for years. So I'll go ahead with accrual basis and hope that issue and client is left alone. I'd be interested in any other responses or if anyone else had similar experience in the past and how it went.}} | ||
Current revision
Discussion Forum Index --> Tax Questions --> Change in Accounting Method
| 13 January 2007 | |
| I have a client who has been an accrual basis taxpayer and is eligible to convert to the cash basis (under $1M exception). I am preparing form 3115 to attach to his 2006 return. I have several concerns/questions: 1. Will this be an automatic change 2. He has been in business for over 18 years this is the second time I will be filing his return. If I switch him to Cash from Accrual using form 3115 is the IRS going to check to see if the accrual method was originally elected. I do not have the initial return to verify that he should actually be accrual. 3. Will I need a 481(a) adjustment for 2006? If so, positive or negative? What brought up the subject was when he gave me his information this year he did not include any A/R but he did provide me with A/P and Accrued Expenses. I then asked him for A/R which led to a discussion that he thought he was cash basis. I informed him that the prior returns (1120S) for 2004 and 2005 show him as being accrual basis tax payer. Form 3115 does not help when going from accrual to cash conversion. When asking other CPAs I have been told to either file it like before leaving off A/R to checking the box as Cash basis even though prior returns showed accrual. Any help would be much appreciated. Thanks | |
| 15 May 2008 | |
| WBR, I guess that you never got much help on this here, but I hope you found a solution that worked for you. Since my question is quite similar, I thought I would post here too in case there are more looking here now. I have a client that has "cash basis" checked on the accounting method for the prior year, so I started a cash method tax return, even though the last return appeared to be accrual (I thought I would just back out the accrued A/R & A/P). There were a lot of other items in the prior return that did not look like a carefully prepared return. Finally, I asked the prior preparer about it and she indicated that the client had filed accrual returns for many years (and she merely checked the wrong accounting method box) and I found that the last 3 years were filed with the cash basis method checked. I still haven't seen an earlier return that had the accrual method box checked (but am asking to see a return with accrual checked), so it does leave me wondering the best approach. Continuing the accrual method is lower tax for the client for 2007, but I think the client should preserve the cash method election for the long-term if they continue growth, so I am also attempting to explain to the client why they should pay more tax for 2007. It is a tough situation to be in. Any thought for similar situations would be most welcome! | |
RoyDaleOne (talk|edits) said: | 15 May 2008 |
| Sheldon:
I wonder why you want to change the accounting method from accrual to cash? It has been my experience that the use of accrual method it is easier to maintain lower over all income taxes in the long run. Another the industry is one factor in the selection of an accounting method. Industry? The reason the first poster's question did not have a comment from me is the obvious inconsistencies in the facts. | |
| 9 June 2008 | |
| Thanks for your input RoyDaleOne! And you were quick, but I have put off dealing with this client until today and decided to look again. This client is in the printing design business. I am going ahead today and just believing the prior preparer and the client that they have always filed the same way. It appears to me that they have always filed accrual basis and shown the method box as cash. It was strange to me, but the prior preparer said she would back up her word that she just checked the wrong accounting method for years. So I'll go ahead with accrual basis and hope that issue and client is left alone. I'd be interested in any other responses or if anyone else had similar experience in the past and how it went. | |
