Margaret CPA in OH Posted February 9, 2015 Report Share Posted February 9, 2015 I just efiled a client with $1978 in supplies (mostly windows on a remodeling job he did earning $4450). He's a disabled self employed contractor who shouldn't be working at all after breaking his back last year. Anyway, I have a signed policy for materials and supplies, held the return until I got it then promptly forgot to include the election.Suggestions? He may not work at all in 2015 but that shouldn't matter. I goofed! Quote Link to comment Share on other sites More sharing options...
RitaB Posted February 9, 2015 Report Share Posted February 9, 2015 (edited) My completely unfounded opinion is that about 95% of us will be doing that multiple times this year, so you are completely normal. Can you just amend the return and see that he mails the amended return before 4/15/15, or is this a mistake worthy of death and you will be taken out and shot? Cause, they really should rethink that if they have to shoot 95% of us. There is a shortage of ammo, you know. Edited February 9, 2015 by RitaB 6 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted February 9, 2015 Author Report Share Posted February 9, 2015 Rita, I love being called 'normal!' So an amended return before 4.15 will suffice - maybe. This is, of course, the only EITC client that I have, wouldn't you know. It's all legit (broken back, wife works in a bakery for $22,000 with 3 kids at home). I have all other i's dotted and t's crossed, my 8867 on file, back up records, but don't want any issues.Also, Ohio has now decided to crack down on identity theft so are sending out letters to, apparently, early filers to prove they are legit. My son got the letter as did another retired client. They both were filed about 10 days ago. Now I'm getting paranoid - will they be after me next? 2 Quote Link to comment Share on other sites More sharing options...
RitaB Posted February 9, 2015 Report Share Posted February 9, 2015 Rita, I love being called 'normal!' You are actually way above average, but I'm not trying to make you a bigger target. Now I'm getting paranoid - will they be after me next? Yes. Yes, they will. 2 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 9, 2015 Report Share Posted February 9, 2015 Margaret, this is one of my worries too, forgetting to attach this election each year, and I think this will happen a lot. Fwiw, I think you should try to send it in too. I did read that a late election on an amended return is only available with IRS consent, so I'm not really sure how IRS will view this since you aren't really amending. 3 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted February 9, 2015 Author Report Share Posted February 9, 2015 Well, I think I will just mail it and hope for the best throwing myself on the mercy of the agency. I'm sure not to be alone. 3 Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted February 9, 2015 Report Share Posted February 9, 2015 Does anyone know if ATX provides any type of alert (when checking the return based on the forms filed) indicating an election may be needed? Quote Link to comment Share on other sites More sharing options...
RitaB Posted February 9, 2015 Report Share Posted February 9, 2015 Does anyone know if ATX provides any type of alert (when checking the return based on the forms filed) indicating an election may be needed? No warning, but it does add the elections statement automatically. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted February 10, 2015 Author Report Share Posted February 10, 2015 Added automatically? Ummm, not in this case. I just checked again and, nope, no elections statement. Perhaps because there was no depreciation? Quote Link to comment Share on other sites More sharing options...
RitaB Posted February 10, 2015 Report Share Posted February 10, 2015 Added automatically? Ummm, not in this case. I just checked again and, nope, no elections statement. Perhaps because there was no depreciation? Probably. Again, that is my completely unfounded opinion. But my two did have depreciation. Quote Link to comment Share on other sites More sharing options...
SaraEA Posted February 10, 2015 Report Share Posted February 10, 2015 I think I'm reading this differently than everyone else. Your client put in windows for a client, which cost him $1978 and the rest was labor. The windows are COGS. (Beginning inventory 0, purchases $1978, ending inventory 0). Supplies are things like nails, caulk, maybe some paint--stuff he keeps on hand that aren't specific to a single job. No election needed. 3 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted February 10, 2015 Author Report Share Posted February 10, 2015 Okay, materials, not supplies. Technically, yes, cogs but he doesn't keep inventory and at his level of business, I don't get all the niceties that one would hope. He had income of $4450 for a couple of odd jobs one of which was installing some windows. The total cost of the windows was not $1978. Frankly, I didn't ask him to segregate and itemize every expenditure as he lumps it all into supplies. And they would be cogs materials and supplies anyway. Are these not subject to the same criteria?It would be ideal to treat all clients exactly the same whether $445,000 in income or 1/100th that amount. I'm lucky to get what I get as it is. Real world, but I believe he is honest and the bottom line comes out the same.It has been my understanding anyway that materials and supplies are, well, materials and supplies. Guess not.Alas, retirement looms very large in my horizon and, like some others here, I will now go whimper. I tried to get rid of all business clients a few years ago. Time to shed them all, methinks. 1 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 10, 2015 Report Share Posted February 10, 2015 COGS and supplies. No depreciation needed. No 3115 needed. He does not need to keep inventory, just the copies of the invoices where he purchased the windows. 2 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted February 10, 2015 Author Report Share Posted February 10, 2015 And no #$*$%^&* election? I am extending all returns that have any Schedule C or E until this is all sorted out. Yes, I have taken 2 8 hour classes and read, read, read until my eyes are glazed. But it still baffles me as to the one, true response. I will now go eat some cookies and watch Castle. 6 Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted February 10, 2015 Report Share Posted February 10, 2015 Much like Margaret, I have read up on the issue and still have more questions than answers. I recognize that I should have taken classes on the topic but I did not. I did buy a CPE course that was provided on this forum in an earlier post on the topic and found it helpful but I still have questions. With that said, can someone provide a brief explanation on exactly when a 3115 is required? I'm sure there are many instances when it is needed but can someone give a general explanation on when the 3115 is necessary? If clients do have a Schedule C or Schedule E and they have Repairs/Maintenance Expenses and also have depreciation expenses and do not file a 3115 (because they believe and their tax preparer believe it is not necessary) does that warrant immediate scrutiny by the IRS? Will they automatically receive some type of IRS notice...or is it as a result of an audit that it would determined that a 3115 should have been filed? And if no 3115 was filed what are the ramifications of that? Just trying to get a better grasp of this and would appreciate any guidance. Thanks very much. 6 Quote Link to comment Share on other sites More sharing options...
MsTabbyKats Posted February 10, 2015 Report Share Posted February 10, 2015 Yardley I was going to post the same question. From what I've been reading, I doubt any of my clients need a 3115...because, maybe at most someone paints a room, or fixes the tile on the floor...or depreciates a computer. But...I'm wondering if I'm missing something...and they'll be getting letters. And in addition...why would someone want to change their accounting method? Or is the IRS saying they have to change their accounting method? I'm going to admit...100% ignorance of this topic. 2 Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted February 10, 2015 Report Share Posted February 10, 2015 Wow, have the same question too. '?do=embed' frameborder='0' data-embedContent>> Quote Link to comment Share on other sites More sharing options...
Catherine Posted February 10, 2015 Report Share Posted February 10, 2015 A sign I used to have up back in my engineering days (I did materials and failure analysis, among other things): We have not succeeded in answering all of your questions. In fact, the results we have found raise a whole NEW set of questions. In some ways, we are as confused as ever - but we believe we are confused at a Higher Level, and about More Important things. 8 Quote Link to comment Share on other sites More sharing options...
rfassett Posted February 10, 2015 Report Share Posted February 10, 2015 OK - first there are no easy answers to most of the questions and no easy summary. However, being a KISS type of guy, I always, always try to bring things down to their simplest element. MY understanding - none of this applies to COGS. Section 263 deals with capitalizing all kinds of things IF your client fits the criteria to have to abide by those rules. Just a WAG, most of us do not have many clients in that boat. So what is this all about and when is a 3115 required and what is the trigger point. It, according to my understanding, and you all can feel free to correct my understanding, is required when the taxpayer has not been in compliance with the regs as they are stated now going back retroactively to when the proposed regs were issued, or something like that. So if your client should have reported depreciation in one manner but did not, to become compliant, a change in accounting method is required, and consequently, a Form 3115. As I am thinking this through, ALL of my write-up clients, because we make the decisions (with their approval) , have been and continue to be compliant and we will not be filing 3115s for any of those. All of our other clients with depreciable assets will have to be analyzed on an individual basis to determine if the decisions they have made over the years has them in compliance with the regs. The elections that are being talked about are "safe-harbor" elections about prospective activity. By definition, safe-harbor means that if you do what you are suppose to in that harbor, no further questions will be made. By making the elections, your client is stating that he is going to remain in compliance with the rules inside of that harbor. Should he venture outside of the harbor, he does so at his own risk. I know this sounds simplistic, and these rules are anything but simple, but those are the basic rules as I understand them. In the words of one much greater than myself, we have nothing to fear but fear itself. Margaret, I do not think you need to do anything with your present situation. Matter of fact, you may already be guilty of over-kill. 5 Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted February 10, 2015 Report Share Posted February 10, 2015 (edited) rfassett...thanks to you and everyone who have chimed in with their guidance (and maybe others will continue to post on this topic as well, that would be great.) Based on these explanations, I think its fair to say, we may all have clients with Schedule C's and Schedule E's and Asset Depreciation that we need to analyze but in the end, a 3115 or any type of safe harbor election may not be required. As long as we all do our due diligence and try to ensure, to the best of our knowledge, that assets, depreciation method selections and repair and maintenance expenses were handled correctly. If we feel somewhat assured that they were, then form 3115 will not be filed as part of the return. I know that may be a simplistic approach and I'm not suggesting we shouldn't continue to stay informed on the topic, because obviously we should...but we shouldn't go crazy over it either. Edited February 10, 2015 by Yardley CPA 2 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 10, 2015 Report Share Posted February 10, 2015 Thank you, Ron, that is my basic understanding as well. The one that I have on my desk right now is a smallish retailer with 2 locations and the materials/supplies issue. If this business purchases preprinted bags, gift boxes and sales slips that are not all used by the year-end, am I really supposed to analyze that and move some of that expense to a supplies inventory?! Sort of rhetorical, but that is what I'm looking at today and trying to decide because the sales slips purchased near enough to year end to have not all been used up exceeded the $200 threshold. It's a measly $700 bill for these sales slips, and I think this is why the AICPA and other groups are arguing that the thresholds are too low. This seems like a big waste of time for something that is used on an ongoing and steady basis... or am I completely off the track with my thinking about this "supply" issue? Quote Link to comment Share on other sites More sharing options...
Randall Posted February 10, 2015 Report Share Posted February 10, 2015 rfassett, I was thinking along those lines too. Unless something comes to my attention about the past, I'm assuming I did things correctly. I'll worry about a 3115 then. Going forward, I'll do the safe harbor election. Just did one before it got out the door. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted February 10, 2015 Author Report Share Posted February 10, 2015 So rfassett, I genuinely appreciate your input and feel much better now. I had no intention of filing a 3115 as it did not apply in any case. My concern was not filing what I understood was the 'required' election annually beginning for 2014 to qualify for the safe harbors. I believe he does and always has but I just don't know for sure now what to do about not making the election. It could be nothing. 1 Quote Link to comment Share on other sites More sharing options...
rfassett Posted February 10, 2015 Report Share Posted February 10, 2015 So rfassett, I genuinely appreciate your input and feel much better now. I had no intention of filing a 3115 as it did not apply in any case. My concern was not filing what I understood was the 'required' election annually beginning for 2014 to qualify for the safe harbors. I believe he does and always has but I just don't know for sure now what to do about not making the election. It could be nothing Sorry for the confusion Margaret. I know you had no 3115 issue. I should have used that quote thingie because my response was mostly to another post or two on this thread. The tag I hung on my post about you stands. I do not think you even need to be concerned with the election. To the extent that your guy basically uses up most all of his "supplies" on a per job basis, those are just cost of goods sold and he falls way, way below the criteria that would throw him into the 263A unicap rules. I just do not see a need to file the election. My point is, I think you are fine without it. That said, there is no harm in filing it, I guess. But I would not lose any sleep over missing the filing of this one. 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 10, 2015 Report Share Posted February 10, 2015 If your client has been in business before the final or temporary repair regs, he probably did not follow the new repair regs and needs to change his accounting method. 2014 is the last year you can file Form 3115 without a hefty user fee. The parts that worry me the most are materials and supplies. Unless I did the bookkeeping, I don't know necessarily what all was in those bulk numbers. And, for some of my not-so-small anymore businesses, I know I didn't look very hard at anything under $1000. So, I may have some items that should be depreciated that were not. Plus I have some very small business that did not need more expenses where we are depreciating some very small items, such as a $100 chair, that should be supplies now. And, this is taking a very long time to go through and call clients with questions and drill down into their QB files. I have a new client who gave me his 2013 S-corp return with pages and pages of depreciation where each item was "Equipment." He doesn't know, and he feels his old preparer is too expensive and does not want to cause any more bills from him. I have some calls in today to clients to urge them to accept extensions. Yes, I need more time. But, more importantly, I want to see where the IRS is going to go with this. Will AICPA convince the IRS that small businesses should include a simple statement of compliance rather than Forms 3115? 1 Quote Link to comment Share on other sites More sharing options...
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