Client has a single-owner LLC service business - developing software. Not much action last year, until October-November when he was awarded a government contract and received payments in advance. By now he is up and running with employees, rent payments etc, but had very few expenses in 2007. He's a cash basis taxpayer. How can he avoid a big tax bite in 2007 - should he convert to accrual basis or can he change the business' tax year or any other suggestions?
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Accrual basis
Dear EllieB
If the SMLLC has elected to be taxed as a corporation, just adopt the accrual method of accounting ... if it hasn't yet filed a return electing the cash method of accounting. If the SMLLC is a disregarded entity, elect the accrual method of accounting on Schedule C for this business ... unless a Schedule C was filed for this business for 2006, and the cash method of accounting was indicated thereon.
See Code §451 and Regs §1.451-5.Roland Slugg
"I do what I can." -
Yes, filed in 2006
Yes, the LLC is a disregarded entity and he filed a schedulc C for it in 2006 using cash basis. As I said, very little activity until the contract came thru.Comment
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