Accrual Accounting Issue on Schedule C

[ScottsTaxes1]

I started my business in 2021 & for tax years 2021, 2022, & 2023 I listed the business as using accrual accounting on Schedule C. In hindsight, I really should have used cash method accounting instead (all the income reported for those years was done on a cash basis via 1099's). 

What's the best way to remedy this? Should I file amended returns for those years to change it to cash basis? Should I instead just file the form needed to change the LLC's filing status from accrual to cash? The income reported won't change, but I'm stumped on how to fix it for 2024 tax year and beyond.

[PatriciaV · Accepted solution]

Requesting permission to change from accrual to cash basis is likely the easier choice if your previous years' reported income and expenses won't change on amended returns. You will report on cash-basis this year when requesting the change.

To do this, you'll need to file Form 3115, which is available in TurboTax Business using Forms Mode. The tax year of change would be the current year. Here are the complete IRS Instructions for Form 3115. Note especially Table B for the sections you'll need to complete.

While Form 3115 is tedious to complete, you will do this only once. If you need additional help, consider upgrading to TurboTax Live. This online service provides step-by-step guidance from a tax expert whenever you need assistance, either over the phone or by screensharing.