error on inventory method Schedule C and form 3115

[Spike100]

I had a CPA until 2019, but began using TT for 2021 tax year.

My overall accounting method is correct on schedule C as “Cash”.  My issue is with the Inventory method.  I incorrectly did the following in the 2021 tax year:

•  In line 33 (method used to value inventory), I used “Cost”, where I should have not used this line)
• In line 35 (inventory beginning of year)  I entered an amount $22,  where should not have as my previous years.  Basically, the only line I should have used is line 36, which I did too.

I noticed the above while working on my 2022 taxes as TT is flagging that “unless I get prior approval from the IRS (form 3115) , I must continue using the same inventory method from year to year” I don’t have a 3115, and prefer to have my inventory method to be cash (vs. the cost)

The bottom line: I want to be able to use the inventory method (cash) for my 2022 taxes as they were on 2019 and prior years. I read quite a bit on the 3115 (instructions, google etc) and still confuse.  II would like not to use lines 33 and 35 at all, as it was wrong for me to use them in the first place for the 2021 tax year.

I come up with what I should do, but is there any other options?

• Do I file a 3115 for the 2021 tax year to correct from “cost to cash”, and in turn, continue working and filing my 2022 taxes with my “correct” inventory method (cash)?
• Do I file a 3115 for 2021, continue working on my 2022 taxes using the wrong  inventory method, and in turn, do another 3115 after I file them?
• ?

[Spike100]

First, thank you in advance and I will try to simplify my  above question:

I’m working to find out if I need to do a form 3115 on my 2021 tax return (CD/download first time user).

When comparing Schedule C entries done by a CPA to prior years up to 2019 and the 2021 return that I completed with TT, I believe I messed up my 2021 return.

Bottom line:

Keeping in mind that on my Schedule C Part line F is “Cash” and would like to keep Part III the same as Cash. 

Which entries in Part III, need to be checked and entered with an amount to identify an inventory as Cash?

Or which entries need to be checked or have an amount to keep it as Accrual?

Since I don't know if my entries indicated I submitted for an Accrual or Cash method in Part III, Please take a look at my entries on Schedule C in 2021 (my intention was to be Cash):

line F (accounting method), entered “Cash” (correct in my case).

Part III (the lines with the issue):

line 33, marked “Cost” (line was not used by CPA in 2019)

line 34: checked “NO” (line not used by CPA in 2019)

line 35, entered an amount of $22 for Beginning Inventory (line was not used by CPA in 2019)

line 38, entered $22 Materials & Supplies (which was correct in my case)

line 41, End of the Year Inventory, resulted in $22. (line was not used by CPA in 2019)

Line 42 Cost of goods sold $22 (all along the $22 figure was meant to be only for supplies/materials, not inventory)

Again, thank you in advanced for your time!

[RobertB4444 · Accepted solution]

Based on what you've written it doesn't sound like you have any inventory at all so you shouldn't worry about the method used with it.  If the amount entered was supposed to be 'supplies' then in the future you should enter it as a deduction for supplies. 

You can keep the cost method for your inventory since you don't appear to have any.  If you do have actual inventory then just tell the system that you received approval and change the inventory method to cash.  Since you didn't actually use the inventory method last year, only had a data entry error, it will be no big deal to change it.

@Spike100 

[Spike100]

Thank you! Correct, I didn't report inventory last  year and my erroneous entry was meant for materials & supplies--a data error.

[Reginawestfall9]

Hello, I believe I may have done the same thing. On my inventory explanation I just put I was paid in cash for 2024. Can you tell me did this create an issue or was it fine? This is my first year filing on my own and I didn't realize I clicked i had inventory. Although I said yes, there was no inventory entered on those lines. However, i couldn't find the section after that to go back and click no. Should I worry?

[PatriciaV]

If you didn't enter anything for your inventory before you filed your return, you should be fine. You have a good explanation should the IRS have questions.

@Reginawestfall9