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DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 683
Experience:  Years of Experience in Business & Personal Taxes
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If a taxpayer files a Schedule C for their business and receives

Resolved Question:

If a taxpayer files a Schedule C for their business and receives deposits in 2012 which relates to services which will be performed in 2013-- Do they have to report the income in 2012 or can they defer the income until 2013?
Submitted: 10 months ago.
Category: Tax
Expert:  DanielleCPA replied 10 months ago.

DanielleCPA :

Welcome and thanks for your question!

DanielleCPA :

If the taxpayer files their schedule C on the cash basis, then they need to report all deposits received in 2012, regardless of when the services were performed.

Customer:

Is it possible for them to make an election under Pub 538--treatment of advance sales payments?

DanielleCPA :

On the other hand, if the taxpayer files their schedule C on the accrual basis, then the deposits relating to 2013 would not be reported until 2013. On the accrual basis, you only report the income to the period to which it relates, so only work performed/invoiced in 2012.

Customer:

They have never had these type of receipts before. Can they easily elect to file under the accrual basis?

DanielleCPA :

Yes - they can elect to postpone these payments, as long as the service will be performed entirely in 2013.

Customer:

Would I need to file a Form 3115 or would I note the election with the filing of the return?

DanielleCPA :

Yes, per Publication 538, you would need to file a Form 3115 to make that election.

Customer:

We haven't filed the 2112 return, yet. Is it too late to make an election to either switch to the accrual method of accounting or make the Advance payment election for 2112?

DanielleCPA :

If the advance payments are the motivation behind switching, I would recommend switching to the Advance payment method vs. the accrual method. It will allow you a little more flexibility and will be less overall tracking.

Customer:

Would I be able to still elect for 2012 if I haven't filed the return, yet? This is my last question!

DanielleCPA :

Thank you for your patience. Yes, you may file the 3115 with or before your return.

Customer:

Thanks so much for your help! I will leave you Excellent feedback. Have a great day!

DanielleCPA :

You're welcome.

DanielleCPA :

Have a great evening!

DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 683
Experience: Years of Experience in Business & Personal Taxes
DanielleCPA and 5 other Tax Specialists are ready to help you

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