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Posted by Admin Posted on Jan 30 2015
The IRS has issued regulations that will impact just about every business tax return we will be preparing for 2014. This will also impact many personal returns that have an unincorporated business (Schedule C), rental properties (Schedule E) and farms (Schedule F). Good news for me will be that my fees for 2014 tax returns will be higher for people and businessesimpacted by this change. Of course that is bad news for my clients. The IRS is basically requiring anyone that has taken a deduction for supplies OR a deduction for repairs OR has had tangible fixed assets to file a change in accounting principle form (Form 3115) with the IRS. The form will be filed electronically with the IRS when we file your tax return BUT it will also be filed in paper form with the Ogden office of the IRS.

The strange part about this is that Form 3115 is normally used when you CHANGE methods of accounting but in this case you are basically making an election to CONTINUE doing what you did in the past. I do not ever remember anything like this in the past. 

I don't want to get too technical but basically what the IRS is saying that if these purchases would have impacted more than one tax period (for instance you bought the stuff in one tax year and used it in another) then you should not be deducting it even though you are on the cash basis of accounting (meaning you deduct it when you pay for something). So, they are allowing you to make a one time election by filing the change of accounting method form (Form 3115). The one bit of good news is that small taxpayers (all but 1 or 2 of my clients) will be able to do a simplify version of the form instead of the full Form which would have added a very substantial cost to the preparation of this year's tax return. 

Technically, we do not have to file the Form 3115 but if we do not do so, then each tax return would require a written election. And the penalty for missing the election is not deducting the item in question. So, we will be filing Form 3115 as basically a "safety net" to cover you for all future years. 

We will do our best to keep our fees to a minimum but we just trying to make you aware that the first thing we will do when we look at your return is to see if you are going to need to file Form 3115.