Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

This answer was rated:

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

A taxpayer, Form 1040 Schedule...
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: 14,460
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 10 months ago
At what point would he have to change to accrual?
Customer reply replied 10 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 10 months ago
Sole proprietor
Customer reply replied 10 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 10 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 10 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: 14,460
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
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Lane Your Own Question
Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,460
14,460 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

1,338 satisfied customers

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

Richard

Richard

Tax Attorney

4,512 satisfied customers

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

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

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

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 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.

< Previous | Next >

Related Tax Questions
On schedule c-ez ,I gave my tax accountant the wrong figure
On schedule c-ez ,I gave my tax accountant the wrong figure amount on my self employtment. I needed 3 credits to quafily for social security and came up short by $58.24. I just need to claim $100.00 l… read more
Dr Arthur Rubin
Dr Arthur Rubin
Doctoral Degree
24 satisfied customers
My old law law firm, a pass through PLLC, loosely "received"
My old law law firm, a pass through PLLC, loosely "received" a CP171 Notice for tax year 2013 (calendar year) dated April 16, 2018. Return was filed on time on time in September or October 2017, which… read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
1,059 satisfied customers
Can a private individual invest in a non-profit organization
Can a private individual invest in a non-profit organization in the state of Iowa … read more
Lane
Lane
JD, CFP, MBA, CRPS
14,460 satisfied customers
I have a single-member/sole proprietor LLC Company in my
Hello I have a single-member/sole proprietor LLC Company in my name. I am interested in investing $50,000 in a startup company. Can I invest in this Company through my LLC? or should I invest personal… read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
1,059 satisfied customers
It's a business/tax law question. I am a sole proprietor
It's a business/tax law question. I am a sole proprietor business owner. I am in negotiations to sell my business. Buyer wants to pay 1 lump sum (6 figures) but if I take it all at once, it is going t… read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
1,059 satisfied customers
I need blank corporate (C corporation) and individual
I need blank corporate (C corporation) and individual federal tax forms for 2016 and 2017 … read more
abci168
abci168
Principal
27 satisfied customers
Looking for estimated tax rate for 500,000 income in 2017.
looking for estimated tax rate for 500,000 income in 2017 … read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,512 satisfied customers
If I am a sole proprietor is it better for me to be in
If I am a sole proprietor is it better for me to be in payroll? Or do an owners draw - owner equity?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,397 satisfied customers
Non-for-profit collects sales tax on some of its sales in
Non-for-profit collects sales tax on some of its sales in NYS. When this NFP files Sales tax return, what should it put in Gross Sales field? Overall Gross Income that included membership dues, donati… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,288 satisfied customers
Estate Law. As administrator of my brother's estate (passed
Estate Law. As administrator of my brother's estate (passed 09/27/2017), I have completed his financial affairs Including his Federal and NY income tax return for 2017. Since he made no income after h… read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
With the new tax bill what is the impact on pass through
With the new tax bill what is the impact on pass through income for LLC's 2018 income? … read more
Lane
Lane
JD, CFP, MBA, CRPS
14,460 satisfied customers
Can a married LLC Partnership file schedule C on their 1040
Can a married LLC Partnership file schedule C on their 1040 with their W2 income? And if so if they fie separate sch C how do they go about it? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,288 satisfied customers
An llc gets income as a non employee to complete work for
An llc gets income as a non employee to complete work for another company. Is that taxable income? … read more
Lane
Lane
JD, CFP, MBA, CRPS
14,460 satisfied customers
Should LLCs listed as a Partnership (P) or Individual/sole
Should LLCs listed as a Partnership (P) or Individual/sole proprietor or single-member LLC receive 1099-misc?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Changing being taxed as an LLC sole proprietor to an LLC
changing being taxed as an LLC sole proprietor to an LLC taxed as an S-corp, do they need to file Form 8832 or Form 2553 or both?If both, in what order?THANKS… read more
abci168
abci168
Principal
27 satisfied customers
With the new tax laws, if I'm a sole proprietor, would it
With the new tax laws, if I'm a sole proprietor, would it make sense for me to become an LLC? … read more
Lane
Lane
JD, CFP, MBA, CRPS
14,460 satisfied customers
A law firm (which is a Schedule C filer) has gross income of
A law firm (which is a Schedule C filer) has gross income of 1,000,000 & Net Income 0f 280,000. In the tax reform just passed, there is a 20% deduction for law firms that have income less than 315,000… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,397 satisfied customers
Assuming a Medicare tax rate of 1.45% and monthly gross
Assuming a Medicare tax rate of 1.45% and monthly gross wages of $2,500, the amount recorded in Medicare Tax Payable for one quarter for the employee's payroll deduction is… read more
taxmanrog
taxmanrog
Master\u0027s Degree
975 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