Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

A taxpayer, Form 1040 Schedule C, is on the cash basis. The

average revenue for the last...
A taxpayer, Form 1040 Schedule C, is on the cash basis. The average revenue for the last 5 years is $5,100,000. There is no inventory. The NAICS is 423600Can he remain on the cash basis?
Show More
Show Less
Ask Your Own Tax Question
Answered in 10 minutes by:
8/15/2017
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,878
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

For sole proprietors, S corporations, limited liability companies and partnerships:

  • The cash method is always allowed if the entity meets the $1 million average revenue test.
  • The entity test does not apply.
  • The cash method is allowed if the company has more than $1 million in sales and meets the service business test.
  • The accrual method is required if the entity fails both the $1 million average revenue and the material income-producing factor tests.

...

The $5MM revenue issue regard C-Corps. C corporations (other than farms) must use the accrual method if they have average annual gross receipts for the previous three tax years of more than $5 million [IRC section 448(b)(3)]. The accrual method is also required for tax shelters [IRC section 448(a)(3)], and for general partnerships failing the $5 million test that have a C corporation as a partner (section 448(a)(2)).

...

Your statement about inventory goes to the "material income-producing factor tests." (generally, companies that sell merchandise)

...

From the information you've provided, he can remain on the cash basis.

...

(You might find the attached flow chart helpful)

Ask Your Own Tax Question

Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

I hope that you’ll rate me based on my accuracy and thoroughness, rather than any good news/bad news content.

That’s the only way JustAnswer.com will compensate me for the work here.

Thanks,

Lane

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice on three continents since 1986

Ask Your Own Tax Question
Customer reply replied 3 months ago
At what point would he have to change to accrual?
Customer reply replied 3 months ago
Hello?

What does this business do, and is this a sole proprietor or a single member LLC?

Ask Your Own Tax Question
Customer reply replied 3 months ago
Sole proprietor
Customer reply replied 3 months ago
Installs light fixtures as a contractor

As a service business, I don't think he'll ever have to... There WAS some proposed legislation back in 2015 that would require service businesses to change to accrual at $10MM. Not sure if it passed. let me check

Ask Your Own Tax Question
Customer reply replied 3 months ago
ok, there is also a separate LLC for Horse Racing, cash basis as well

As long as a single member, an no S- or C-Corp taxation election, still a disregarded entity (taxed as a sole proprietor)

Ask Your Own Tax Question

Qualifying small business taxpayer exception under Revenue Procedure 2002-28.

A qualifying small business taxpayer is any taxpayer with average annual gross receipts of $10,000,000 or less that is not prohibited from using the cash method under section 448 (see below - Prohibited Principal Activities Under Revenue Procedure 2002-28).

...

This cash method safe harbor applies to service businesses, custom manufacturrers, and any other taxpayer whose pricipal activity is not specifically ineligible under Revenue Procedure 2002-28 (see prohibited activities below).

...

Prohibited Principal Activities Under Revenue Procedure 2002-28

Ineligible Activities:

  • Retail sales
  • Wholesale sales
  • Manufacturing (other than eligible custom manufacturing)
  • Publishing
  • Sound recording
  • Mining
Ask Your Own Tax Question
Customer reply replied 3 months ago
if $10,000,000 or over reveue no safe harbor and has to use a accrual? Is that right?

As of right now there has been no enforcement for purely service businesses.

...

In the spring of 2013, then Chairman Camp released his original draft tax reform bill known as the “Tax Reform Act of 2013,” which included many provisions such as the accrual accounting requirements contained in Section 212 of the legislation... which would require the switch to accrual at $10 million of receipts for service businesses.

...

In February 2016, Speaker Ryan created a new House Tax Reform Task Force chaired by House Ways & Means Committee Chairman Brady to develop a new tax reform plan based on several key principles including tax simplification, closing loopholes, lowering rates, and encouraging the growth of small businesses. The House tax reform plan, known informally as the “Blueprint,” was released in June 2016 and included several major proposals such as lower corporate and individual tax rates, a new 25% tax rate for small pass-through businesses, and full expensing. To pay for these tax reductions, committee members and staff continue to examine other possible changes to the tax code, including the previous mandatory accrual accounting proposals.

...

To address this continuing threat, the ABA sent a new letter to the House Ways and Means Subcommittee on Tax Policy on April 13, 2016 in connection with its hearing on "Fundamental Tax Reform Proposals." The ABA also sent similar letters to the full House Ways and Means Committee and the Senate Finance Committee in April 2017.

...

Although the Trump Administration has not taken a formal position on the mandatory accrual accounting proposals, there is still a significant risk that the proposals could be included in the new comprehensive tax reform legislation that is now being developed in the new 115th Congress

...

but as of today, the switch to accrual for a purely services based business is still only a threat.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,878
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Lane Your Own Question
Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,878
12,878 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

Lane is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
What are the taxes rates 2016 for term gains in irrevocable
what are the taxes rates 2016 for long term gains in irrevocable trusts … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
If I overpaid new Mexico Gross Receipt taxes for from 2007
If I overpaid new Mexico Gross Receipt taxes for from 2007 to 2012, can I now request for a refund. I know there is a statue of limitation of refile, or refund, but one document says I have only three… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
US taxation and sales tax issueI started ebay business with
Second opinion] US taxation and sales tax issueI started ebay business with a Korean relative. We don't have a partnership agreement. The partner has an paypal and ebay account, gets a sales order, an… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Given that the current 1041 tax rate on 401(k) income is
Given that the current 1041 tax rate on 401(k) income is $3206 + 39.6% over $12,400, what will be the new tax rate and will it apply for 2017?… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
If I am a sole proprietor that starts a business using
If I am a sole proprietor that starts a business using personal equipment assets in my business. Are there any ways to establish those assets as depreciable assets and take the maximum allowable write… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
I have a client that was a Sole Proprietor. He formed an LLC
I have a client that was a Sole Proprietor. He formed an LLC and elected to be taxed as an S-corp on 8/1/17. He purchased a $39k vehicle in his sole proprietorship in 2015 and deducted Sec 179 and A/D… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Small schedule c business donates fully depreciated
small schedule c business donates fully depreciated furniture to charity. They've been told that the FMV is $1,000. What is the deduction for contributed property? … read more
Lane
Lane
JD, CFP, MBA, CRPS
12,878 satisfied customers
If an owner took a draw from the business (sole proprietor
If an owner took a draw from the business (sole proprietor llc) and the business is showing a loss excluding that draw then I assume no income or self employment taxes will be paid since there is a lo… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
Question regarding taxation of partnership distributions and
Hi, question regarding taxation of partnership distributions and capital gains … read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,310 satisfied customers
If you own a trucking business as a Sole Proprietor and am
if you own a trucking business as a Sole Proprietor and am the owner that 76 years old but I have a daughter and I would like to convert over to a LLC so that if something happens to me my daughter co… read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,310 satisfied customers
In April 2017 my accountant filed my C Corporation annual
In April 2017 my accountant filed my C Corporation annual taxes (Form 1120). At the time the accountant realized that 3rd and 4th quarter payroll taxes were inderpaid so IRS 941X forms were filed 2 we… read more
Lane
Lane
JD, CFP, MBA, CRPS
12,878 satisfied customers
What is the income tax rate if it is not withdrawn from the
Hi! What is the income tax rate if it is not withdrawn from the LLC? The owner has not withdrawn any balance from the business all the amount reinvested into the business. Thank you!… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
Taxes, which is better LLC or C corporation? California. No.
I looking for the lowest tax liability for me and the business.… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
If a sole proprietor loans money to his schedule C does the
If a sole proprietor loans money to his schedule C does the loan increase his basis in the business and when the business is closed, can the unrepaid loans be taken as a loss ?… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,230 satisfied customers
Has the tax rate on an inheritance for non residents
Has the tax rate on an inheritance for non residents recently been changed? Iv'e been told it is now 5% and no longer 30%.… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
A HUSBAND AND WIFE LLC PARTNERSHIP, BEING A PASS THROUGH
A HUSBAND AND WIFE LLC PARTNERSHIP, BEING A PASS THROUGH ENTITY IS OWNED BY THE PARTNERS AND IS NOT A SEPERATE ENTITY. … read more
Brian Michels
Brian Michels
Partner, CPA
Bachelors of Business Administration
154 satisfied customers
At a restaurant what portion of the gross receipts are
at a restaurant what portion of the gross receipts are taxable for 6.35 of the CT Sales tax … read more
Lane
Lane
JD, CFP, MBA, CRPS
12,878 satisfied customers
A business as a sole proprietor thinking of changing to LLC.
A business as a sole proprietor thinking of changing to LLC. What would be the tax difference? Does the LLC pay corporate taxes? … read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,310 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x