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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Im a tax professional and controller consultant for several

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I'm a tax professional and controller consultant for several small companies...I have a question that I need some clarity on. Can a $3million dollar company with a cost inventory method (per tax code) file corporate tax returns on a cash basis? They are currently on an accrual basis accounting method.

Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Megan C :

Generally, a business of that size would have to use the accrual basis for reporting inventory related expenses.

Megan C :

To qualify to use the cash basis method, under publication 334 the following is true:

Megan C :

Qualifying taxpayer. You are a qualifying taxpayer if:





  • Your average annual gross receipts for each prior tax year ending on or after December 17, 1998, is $1 million or less. (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing by 3.)




  • Your business is not a tax shelter, as defined under section 448(d)(3) of the Internal Revenue Code.





Qualifying small business taxpayer. You are a qualifying small business taxpayer if:



  • Your average annual gross receipts for each prior tax year ending on or after December 31, 2000, is more than $1 million but not more than $10 million. (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3.)




  • You are not prohibited from using the cash method under section 448 of the Internal Revenue Code.




  • Your principal business activity is an eligible business (described in Publication 538 and Revenue Procedure 2002-28).





Megan C :

If you qualify to account under the cash basis of accounting, you would have to file form 3115 to make the change from accrual to cash.

Megan C :

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Megan C :

If you have further questions, please reply below.

Megan C :

Thanks!

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