Taxpayers Prohibited from Using the Cash Method
The following taxpayers are prohibited from using the cash method:
1. If your business's average annual gross receipts exceed for the prior three years exceed $10 million.
2. C corporations and partnerships with C corporations as a partner with average annual gross receipts exceeding $5 million at any time after 1985.
3. Tax Shelters may not use the cash method.
4. Tax-exempt trusts with unrelated business income.
5. Principal business activities prohibited in Revenue Procedure 2002-28:
- Retail trade: NAICS Code: 44-45
- Wholesale trade: NAICS Code: 42
- Manufacturing: NAICS Code: 31-33
- Mining activity: NAICS Code: 211-212
- Information industries: NAICS Code: 5111-5122
You determine your principal business activity by reference to the North American Industry Classification System (NAICS) code published by the Department of Commerce (www.census.gov).
Principal Business Activity:
The Principal activity of a business refers to the business activity that produces the largest percentage of gross receipts in the prior year or the largest average percentage over the three prior years.
For Freelancers and independent Contractors
- Organize your financial data into one central accounting system on the cloud
- Software kept up to date.
- Your data kept secure
- Anytime, anywhere data access.
- Pay your quarterly estimated taxes online.
- Export Schedule C to TurboTax at year-end for faster filing.
- Save up to 50% off QuickBooks Self-Employed. Track every deduction! Start your free trial now!
Have an accounting or bookkeeping question? Email it to me.
- Return to the Tax Basics for Startups Table of Contents to find related links.