Hi I have a new client that has a flea market business all the prior years of having the business his accountant used the cost method Please note he has a small inventory

[barbgreenx]

if I change his method will this trigger a red flag or possible audit?

His beginning inventory was $4,100 ending $2300

this is pretty much the same for the last 8 years

Please advise

Thanks

Barbara Green

[sjrcpa]

Are you saying 8 years' returns showd the same beginning and ending inventory?

[barbgreenx]

Different inventory amount each
He has supporting documents
Kept  good records
It’s that the accounting method
Has been incorrect all these years

[TaxGuyBill]

"the accounting method Has been incorrect all these years"

Can you clarify that?  Are you saying the tax return has been reported using Accrual, but "Cash" was checked on the tax return?  Or has it been reported using the Cash method, and you now want to change it (so it was NOT incorrect, you just want to change it)?

[IRonMaN]

I'm guessing the confusion is assuming that you don't keep track of inventory under the cash basis?  You do still need to record inventory whether you are dealing with the cash or accrual basis for tax purposes.

[abctax55]

:clap:

[IRonMaN · Accepted solution]

You are supposed to use form 3115 when you change a method of accounting.

As a side note, what method are you looking at changing to?

[barbgreenx]

What to change it to Accrual method
Thinking that it has been the cash method all
These years that I should let it stay the same

[sjrcpa]

Why change to accrual? At that level of inventory I'm guessing revenue is small. Taxpayer qualifies to use cash method. Accrual is more work. The 3115 is more work. A small business like this is not likely to keep records on the accrual method, nor understand accrual method, I'd say stay cash.

[barbgreenx]

thanks you this helped