Changing Accounting Methods
If you currently use the accrual method and if your business qualifies to use the cash method under Revenue Procedure 2002-28, you can apply for an automatic change in accounting method by filing Form 3115 with your return.
The IRS will grant automatic consent to an accounting-method change as long as you file Form 3115 with your return. You will have to make a Sec. 481 adjustment in the change year.
Internal Revenue Code Section 481 deals with adjustments required by changes in the method of accounting (ask your accountant about this).
If the change creates an increase in income, you're allowed to spread the income over a four-year period, however, a loss must be taken immediately.
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- Return to the Tax Basics for Startups Table of Contents to find related links.