Redpath Insights

Cash Method, Accrual Method, or Both?

by Redpath and Company

Most taxpayers adopt either the cash method or accrual method of accounting for their businesses tax reporting.

I very rarely see both methods applied to different segments of business. If a taxpayer (entity or individual) has two or more trades or businesses that are separate and distinct, each can adopt separate methods of accounting that are allowed, or required, for the specific type of business activity.  Separate books and records must be maintained for each business activity.

This is definitely a planning opportunity. If a business qualifies as separate and distinct for the other business activity of the taxpayer, a change in the accounting method can be requested even if separate methods weren't used in the past. For most accounting method changes, the IRS has provided automatic consent to change in Revenue Rulings and Procedures.

If you do have separate and distinct businesses owned by yourself or one entity, I recommend operating them through separate LLCs. This helps illustrate the separation from other business activities.

This concept was recently addressed in the taxpayers favor in Chief Counsel Advice 201430013.

Ask your advisor whether you should be separating your distinct business activities and adopting a different method of accounting for some or all of your business activities before year end.

Golf Weekend

Just spent three wonderful days with my buddy, Marty, at the Spring Hill Founders Cup golf tournament. What a great host, course, and membership. All first class.

Marty even allowed me to sport my Keith Richards t-shirt at his place on the porch, where we did a little dancing with Patty, Lesley and Mike (to the Rolling Stones, obviously.)

Classic case of the east-sider bringing down the Edina neighborhood.

My claim is that I was the worst golfer in the field. That's why I boat.


Redpath and Company

Redpath and Company