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I have prepared my 2012 S corp Tax return in Turbo Tax Business. I

I have prepared my 2012...
I have prepared my 2012 S corp Tax return in Turbo Tax Business.

I converted to cash reporting although I do my own reporting "in-house" via the accrual method. I did this because my accountant has converted to cash reporting for past tax returns.

Under the accrual method my expenses would be much higher. My company stopped operation in the first quarter of 2013 and I have retained an attorney to file Chapter 7 personal since the business has no assets and many of the vendors could come after me for the business debt. (personal guarantee).

I am confused about this issue of cash verses accrual now. If I could write off these yet unpaid expenses I have to admit it would be a pretty good deal as it would increase my "loss carry over".

Can you please clarify this for me?
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Answered in 15 minutes by:
9/7/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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MyVirtualCPA :

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

MyVirtualCPA :

How are you today?

MyVirtualCPA :

You could change your accounting method from cash to accrual, but you would need to file for IRS approval using form 3115 before you would be allowed to make the change

Customer:

I am fine how are you?

MyVirtualCPA :

Good

Customer:

Is it then correct that if I use accrual I could write off expenses that are not yet paid. (and probably never will be). If so would it be feasible to do this by the Sept 15 2013 deadline? I was thinking I have enough loss to zero out my tax burden for this year. Maybe I could make the switch for 2013?

MyVirtualCPA :

I find it unlikely that the IRS would grant your request to make the change for that reason

Customer:

So what your saying is that there is really no valid reason for changing my reporting method?

MyVirtualCPA :

That is correct, not in this case...it would if you were continuing operations

Customer:

True but technically I could resume business at some point. I did not dissolve the business or file a business bankruptcy. I just stopped doing business.

MyVirtualCPA :

Okay then what you would do is file form 3115 and get IRS approval, and then if granted you would be able to use the accrual basis

Customer:

Then maybe my strategy due to time constraints could be to go ahead and file as I have prepared it. (cash basis). Then after I file 3115 and get approval I could file an amended return??

MyVirtualCPA :

You would have to prepare the return under the accrual basis, and attach form 3115 to the return

MyVirtualCPA :

you can't do form 3115 with an amended return

Customer:

Oh I see. Do you know if there is time to do all this by Sept 15?

MyVirtualCPA :

Well, that's up to you and your tax preparer

Customer:

I am the tax preparer. (can't afford one due to business failure).
My question is are you familiar with how long it takes on average to get a 3115 request approved?

MyVirtualCPA :

You file it with your tax return --so you prepare it and file your return and if the IRS disallows the change then you would have to amend your return

Customer:

Oh I understand now. That makes sense. I think I can take it from here. Thanks so much for your expert advice!

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
16,581 Satisfied Customers
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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