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Mark Anderson
Mark Anderson, Tax Attorney
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Please only a CPA or Tax Attorney answer: cash vs accrual I'm

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Please only a CPA or Tax Attorney answer:
cash vs accrual
I'm researching a company reports it's income on the cash basis. But his sales has increased to $8 million and am concerned that they might need to be accrual. I think he might be ok to continue as cash for the following reason:
He is an S Corporation and his NAICS code is not in the ineligible NAICS codes per Rev. Proc 2002-28. But wanted to confirm with someone else.
His code is 238900 Refinish Carpentry, although they do other things like constructions and landscaping also.
Also according to Section 5.01 states Qualifying Small Business Taxpayer is any taxpayer with "average annual gross receipts" of $10,000,000 or less.
But it's all very confusing. Can he still report as cash basis?
Submitted: 1 year ago.
Category: Tax
Expert:  Mark Anderson replied 1 year ago.
This website says a S corp can use cash accounting if it has no inventory:http://smallbusiness.chron.com/s-corp-taxes-accrual-cash-12462.htmlAs an S corporation, you can use either the accrual or cash accounting method if you don't keep an inventory. If you maintain an inventory, you have to use the accrual method. The IRS considers an inventory to be items you produce, purchase or sell to generate income. As such, you have to use the accrual method if you wholesale, manufacture or sell products. If you sell services; for example, if you are a doctor, you may use either the cash or accrual method because the IRS considers the items you need to be supplies.
Expert:  Mark Anderson replied 1 year ago.
Here is the info from the IRS:https://www.irs.gov/publications/p538/ar02.html#en_US_201212_publink1000270602Excluded EntitiesThe following entities cannot use the cash method, including any combination of methods that includes the cash method. (See Special rules for farming businesses, later.)A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. See Gross receipts test, below.A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. See Gross receipts test, below.A tax shelter. ExceptionsThe following entities are not prohibited from using the cash method of accounting.Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985.A qualified personal service corporation (PSC). Gross receipts test. A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. An entity's average annual gross receipts for a prior tax year is determined by:Adding the gross receipts for that tax year and the 2 preceding tax years; andDividing the total by 3.See Gross receipts test for qualifying taxpayers, for more information. Generally, a partnership applies the test at the partnership level. Gross receipts for a short tax year are annualized.
Expert:  Mark Anderson replied 1 year ago.
This says s corps can use the cash method:http://taxes.about.com/od/scorporations/a/scorp_account.htmI hope this answers your question. If not, then please reply. Thank you.