Taxpayers Allowed to Use the Cash Method

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** Taxpayers Allowed to Use the Cash Method **

*The following taxpayers may use the cash method:*

· Individuals
· Service businesses
· Custom manufacturers
· Qualified Personal Service Corporations
· Farming businesses
· C corporations with average annual gross receipts of $5 million or less
for the three previous years
· Partnerships with a C corporation as a partner with $5 million or less
in average annual gross receipts for the three previous years.

*1. Individuals:*

Individuals may use the cash method.

*2. Service Businesses:*

A service business with average annual gross receipts of $10 million or
less in the previous three years can use the cash method even if it sells
merchandise related to the service or must use materials and supplies in
the performance the service.

Example:

You provide a service and sell merchandise related to the service and would
like to use the cash method for both activities.

You use only one set of books to account for both activities.

· You're a sole proprietor.
· You run a pool cleaning service.
· In addition to cleaning pools, you sell pool supplies and pool
recreational items out of a retail store.
· Your average annual gross receipts for the last three years were under
$10 million.
· The pool service is your principal activity; it accounted for 70% of
gross receipts in the prior year.
· Sales of pool supplies and recreational items accounted for 30% of gross
receipts in the prior year.
· The retail part of your business is one of the five principal activities
listed in the


Source: loopholelewy.com/loopholelewy/01-tax-basics-for-startups/accounting-methods-06-cash-method-taxpayers-allowed.htm

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