Originally Posted by manethj
I have a construction company. Years 2015 and prior I have used the accrual method of accounting for tax reporting. For 2016 I am using the percentage of completion for our long term contracts. By doing this I will be differing income of around 200 thousand dollars, for billings in excess of costs. Do I have to file form 3115, Change of Accounting for the year 2016? Gross Revenues for 2015 and prior have ranged around 1+ million. For 2016 Gross Revenue is around 4 million. 2017 will be around 10+ million.
An accounting method is a set of rules used to determine when and how income and expenses are reported on your tax return. Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. this method should not be used when there are significant uncertainties about the percentage of completion or the remaining costs to be incurred. The estimating abilities of a contractor should be considered sufficient to use the percentage of completion method if it can estimate the minimum total revenue and maximum total cost with sufficient confidence to justify a contract bidHowever, it is important to make these selections upon filing your initial tax returns, otherwise a change in accounting method would be required, necessitating the filing of Form 3115 If a new tax accounting method is required or desirable as a result of a change in the financial accounting method, an entity must obtain IRS consent by filing a Form 3115
You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns.