Post: #1

Hey guys,

A little late to the party here as tax season is more than halfway through, but I have been working 55+ hour weeks and still attending some final classes at university.

Having prepared over 230 returns thus far in the year and seeing what my firm charges for said preperation and/or tax advice - I thought I'd throw a bone to some of the guys out there who would like tax advice from an actual accountant/tax preparer without the professional level premiums. It's a nice little community we got going on here and I'd like to contribute in my arena of proficiency.

I'm doing this also to my behoof as I am going to start my own online tax preperation/consulting service within the next few years - obviously there will be a promo code (discount) for RVF members

So...For those who haven't filed yet and need a push in the right direction - shoot away!

-Chubby

PS- for advice that would be considered more of a "private" issue, send me a PM and I'll try to get back to you asap; but like I said, weeks are long.

Post: #2

Is an abrupt switch on my end from cash to accrual accounting without a previous explicit election going to trigger any issues?

Post: #3

(03-18-2013 09:34 PM)lurker Wrote:  Is an abrupt switch on my end from cash to accrual accounting without a previous explicit election going to trigger any issues?

Is this in terms of a small business (schedule C), Partnership/S-Corp (Schedule K), Rental (E) etc.? Each one should be proceeded with differently.

Also, the IRS uses complex algorithms that detect semi-material "red-flags" that would trigger a deeper look by an agent and could eventually lead to an audit; most, however, aren't even looked at by an IRS agent. The trick is to avoid the computations.

A good way to detect if this may possibly be a problem is to look at your sales revenue over the past 3 years (if applicable) and compare them to the corresponding profits (before tax). Each year will provide you with a ratio (Sales/Profits) - These ratios should all be fairly similar (omit the beginning years because you will have a good amount of start up costs).

If the switch from cash accounting to accrual accounting throws this ratio for a loop - it may trigger a second look, but if you're not using the switch for a tax evasion strategy and your books are clean - you have nothing to worry about. Going from cash to accrual is by far the most common transition, i'd be more worried if you were going the other way.

In regards to have an explicit election - you just need to make sure you check the box which indicates your method of accounting- that's as explicit as it gets (unless you want to send them a letter that they won't read).

If you found that you had a lot of expenditures this year that you paid for (expensed/bonus depreciated/179'd) but found that the bulk of your receivables will convert to cash in 2013 - then I would wait it out until 2013 to declare you are on an accrual based method.

Also, make sure the transition is seamless - do not "double dip" into expense pools.

Post: #4

(03-18-2013 10:43 PM)Cruisen_Chubby Wrote:  

(03-18-2013 09:34 PM)lurker Wrote:  Is an abrupt switch on my end from cash to accrual accounting without a previous explicit election going to trigger any issues?

Is this in terms of a small business (schedule C), Partnership/S-Corp (Schedule K), Rental (E) etc.? Each one should be proceeded with differently.

Also, the IRS uses complex algorithms that detect semi-material "red-flags" that would trigger a deeper look by an agent and could eventually lead to an audit; most, however, aren't even looked at by an IRS agent. The trick is to avoid the computations.

A good way to detect if this may possibly be a problem is to look at your sales revenue over the past 3 years (if applicable) and compare them to the corresponding profits (before tax). Each year will provide you with a ratio (Sales/Profits) - These ratios should all be fairly similar (omit the beginning years because you will have a good amount of start up costs).

If the switch from cash accounting to accrual accounting throws this ratio for a loop - it may trigger a second look, but if you're not using the switch for a tax evasion strategy and your books are clean - you have nothing to worry about. Going from cash to accrual is by far the most common transition, i'd be more worried if you were going the other way.

In regards to have an explicit election - you just need to make sure you check the box which indicates your method of accounting- that's as explicit as it gets (unless you want to send them a letter that they won't read).

If you found that you had a lot of expenditures this year that you paid for (expensed/bonus depreciated/179'd) but found that the bulk of your receivables will convert to cash in 2013 - then I would wait it out until 2013 to declare you are on an accrual based method.

Also, make sure the transition is seamless - do not "double dip" into expense pools.

This is incorrect. You would have to file a change in accounting method election from a change from cash to accrual. The gain or loss from the change would then have to be included (or spread over years, depending) on your tax return. Though I believe it is considered an automatic change.

Post: #5

(03-19-2013 09:53 AM)Harvey Specter Wrote:  

(03-18-2013 10:43 PM)Cruisen_Chubby Wrote:  

(03-18-2013 09:34 PM)lurker Wrote:  Is an abrupt switch on my end from cash to accrual accounting without a previous explicit election going to trigger any issues?

Is this in terms of a small business (schedule C), Partnership/S-Corp (Schedule K), Rental (E) etc.? Each one should be proceeded with differently.

Also, the IRS uses complex algorithms that detect semi-material "red-flags" that would trigger a deeper look by an agent and could eventually lead to an audit; most, however, aren't even looked at by an IRS agent. The trick is to avoid the computations.

A good way to detect if this may possibly be a problem is to look at your sales revenue over the past 3 years (if applicable) and compare them to the corresponding profits (before tax). Each year will provide you with a ratio (Sales/Profits) - These ratios should all be fairly similar (omit the beginning years because you will have a good amount of start up costs).

If the switch from cash accounting to accrual accounting throws this ratio for a loop - it may trigger a second look, but if you're not using the switch for a tax evasion strategy and your books are clean - you have nothing to worry about. Going from cash to accrual is by far the most common transition, i'd be more worried if you were going the other way.

In regards to have an explicit election - you just need to make sure you check the box which indicates your method of accounting- that's as explicit as it gets (unless you want to send them a letter that they won't read).

If you found that you had a lot of expenditures this year that you paid for (expensed/bonus depreciated/179'd) but found that the bulk of your receivables will convert to cash in 2013 - then I would wait it out until 2013 to declare you are on an accrual based method.

Also, make sure the transition is seamless - do not "double dip" into expense pools.

This is incorrect. You would have to file a change in accounting method election from a change from cash to accrual. The gain or loss from the change would then have to be included (or spread over years, depending) on your tax return. Though I believe it is considered an automatic change.

If he is running an S-Corp he would have to file a method election change - as a small business with under $1M in revenues you do not need to.

I'm assuming he just has a Schedule C because S-Corps typically elect the accrual method from the get go.

Post: #6

(03-19-2013 03:10 PM)Cruisen_Chubby Wrote:  If he is running an S-Corp he would have to file a method election change - as a small business with under $1M in revenues you do not need to.

I'm assuming he just has a Schedule C because S-Corps typically elect the accrual method from the get go.

I am sure that you mean well or whatever, but you should stop giving out tax advice. What you are saying is wrong.