Discussion:Confused... accounting method and bad debt
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Discussion Forum Index --> Advanced Tax Questions --> Confused... accounting method and bad debt
Discussion Forum Index --> Tax Questions --> Confused... accounting method and bad debt
| October 7, 2009 | |
| My client has a consulting business and has been reporting "accrual" accounting. Now he wants to change to "cash" before filing his 2008 return, given that he was stiffed by a client for $80k in fees that he would prefer not to report as income.
Can client change methods now, today, for 2008 (via a 3115, obviously) to avoid reporting this income? Thanks | |
| 7 October 2009 | |
| If he is on the accrual method and it is truly an uncollectable debt is he not going to have bad debt write-off (expense) to offset the income? | |
| October 7, 2009 | |
| You're confused? I'm confused.
A. Has he filed prior returns on accrual? If so, tough, stuck without a 3115 and some good reasons, and I'd say it's too late for 08. If not, he can file cash basis no prob. B. Yes, if he has a letter from someone saying it's bad debt, then it's out for 08 anyway. | |
| 7 October 2009 | |
| it may not have become a bad debt until 09, is the problem | |
| 7 October 2009 | |
| I wouldn't think he needs to pay tax on a receivable outstanding at the end of 2008 that he never collected. | |
| October 7, 2009 | |
| Well, timing is the issue. If it's bad debt in 09, should you include it in the AR in 08? Or can you lookback since you're filing late? Never researched it to know what the answer is, just asking. Creatively. | |
| 7 October 2009 | |
| A consulting business on accrual basis? How big is he? Does he have inventory? It sounds to me like this guy should be on the cash basis anyways. How does his AP compare to his AR?
I think the change to cash qualifies for automatic consent. | |
| October 7, 2009 | |
| To clarify...
Yes he filed in 2007 stating "accrual". Why is it too late to file a 3117 for 2008? And Tm ea...you're asking the questions I'm trying to extract from the client. Thanks! | |
| 7 October 2009 | |
| I haven't done the research but I also believe that if it falls in the automatic consent category you have until the extended due date to file the 3115. I would start with the instructions for that form. | |
