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Military Star Card

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Military Star Card

Military star card Some employees may be able to deduct certain work-related expenses. The following facts from the IRS can help you determine which expenses are deductible as an employee business expense. You must be itemizing deductions on IRS Schedule A to qualify. Military star card Expenses that qualify for an itemized deduction generally include: Military star card Business travel away from home Military star card Business use of your car Military star card Business meals and entertainment Military star card Travel Military star card Use of your home Military star card Education Military star card Supplies Military star card Tools Military star card Miscellaneous expenses Military star card You must keep records to prove the business expenses you deduct. For general information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals available on this website, or by calling 1-800-TAX-FORM (800-829-3676). Military star card If your employer reimburses you under an accountable plan, you should not include the payments in your gross income, and you may not deduct any of the reimbursed amounts. Military star card An accountable plan must meet three requirements: Military star card You must have paid or incurred expenses that are deductible while performing services as an employee. Military star card Military star card You must adequately account to your employer for these expenses within a reasonable time period. Military star card Military star card You must return any excess reimbursement or allowance within a reasonable time period. Military star card If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses. Military star card Generally, you report unreimbursed expenses on IRS Form 2106 or IRS Form 2106-EZ and attach it to Form 1040. Deductible expenses are then reported on IRS Schedule A, as a miscellaneous itemized deduction subject to a rule that limits your employee business expenses deduction to the amount that exceeds 2 percent of your adjusted gross income. Military star card For more information see IRS Publication 529, Miscellaneous Deductions, which is available on this website, or by calling 1-800-TAX-FORM (800-829-3676). Military star card
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Understanding your CP11 Notice

We made changes to your return because we believe there’s a miscalculation. You owe money on your taxes as a result of these changes.

Looking for information for CP11A Notice or CP11M Notice?

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the toll free number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully ― it will explain why you owe money on your taxes.
  • Pay the amount owed by the date on the notice's payment coupon.
  • Make payment arrangements if you can't pay the full amount you owe.
  • Contact us within 60 days of the date of your notice if you disagree with the change we made.
  • Correct the copy of your tax return that you kept for your records.

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Answers to Common Questions

How can I find out what caused my tax return to change?
Please contact us at the number listed on your notice for specific information concerning your tax return.

What should I do if I disagree with the changes you made?
If you disagree, contact us at the toll free number listed on the top right corner of your notice.

If you contact us in writing within 60 days of the date of this notice, we'll reverse the change we made to your account. However, if you're unable to provide us additional information that justifies the reversal and we believe the reversal is in error, we'll forward your case for audit. This step gives you formal appeal rights, including the right to appeal our decision in court before you have to pay the additional tax. After we forward your case, the audit staff will contact you within five to six weeks to fully explain the audit process and your rights. If you don’t contact us within the 60-day period, you'll lose your right to appeal our decision before payment of tax.

If you don't contact us within 60 days, the change won’t be reversed and you must pay the additional tax. You may then file a claim for refund. You must submit the claim within three years of the date you filed the tax return, or within two years of the date of your last payment for this tax.

What happens if I can’t pay the full amount I owe?
You can arrange to make a payment plan with us if you can’t pay the full amount you owe.

Am I charged interest on the money I owe?
Not if you pay the full amount you owe by the date on the payment coupon. However interest accrues on the unpaid balance after that date.

Will I receive a penalty if I can't pay the full amount?
Yes, you will receive a late payment penalty. You can contact us at the number given on your notice if you're unable to pay the full amount shown in your specific notice because of circumstances beyond your control. Contact us by the due date of your payment and, depending on your situation, we may be able to remove the penalty.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 19-Feb-2014

The Military Star Card

Military star card 2. Military star card   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. Military star card You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. Military star card This chapter discusses accounting methods. Military star card For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. Military star card Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. Military star card Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. Military star card Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Military star card A material item is one that affects the proper time for inclusion of income or allowance of a deduction. Military star card An item considered material for financial statement purposes is generally also considered material for income tax purposes. Military star card See Publication 538 for more information. Military star card You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. Military star card If you later want to change your accounting method, you generally must get IRS approval. Military star card How to obtain IRS approval is discussed later under Changes in Methods of Accounting . Military star card Types of accounting methods. Military star card   Generally, you can use any of the following accounting methods. Military star card Each method is discussed in detail below. Military star card Cash method. Military star card Accrual method. Military star card Special methods of accounting for certain items of income and expenses. Military star card Combination (hybrid) method using elements of two or more of the above. Military star card Business and other items. Military star card   You can account for business and personal items using different accounting methods. Military star card For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. Military star card Two or more businesses. Military star card   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Military star card Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. Military star card Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. Military star card However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. Military star card See Accrual Method Required , later. Military star card Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. Military star card Items of income include money received as well as property or services received. Military star card If you receive property or services, you must include the fair market value (FMV) of the property or services in income. Military star card See chapter 3 for information on how to report farm income on your income tax return. Military star card Constructive receipt. Military star card   Income is constructively received when an amount is credited to your account or made available to you without restriction. Military star card You do not need to have possession of the income for it to be treated as income for the tax year. Military star card If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. Military star card Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. Military star card Direct payments and counter-cyclical payments. Military star card   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. Military star card Delaying receipt of income. Military star card   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. Military star card You must report the income in the year the money or property is received or made available to you without restriction. Military star card Example. Military star card Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. Military star card She was told in December that her payment was available. Military star card She requested not to be paid until January 2014. Military star card However, she must still include this payment in her 2013 income because it was made available to her in 2013. Military star card Debts paid by another person or canceled. Military star card   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. Military star card If you receive income in this way, you constructively receive the income when the debt is canceled or paid. Military star card See Cancellation of Debt in chapter 3. Military star card Deferred payment contract. Military star card   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. Military star card However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. Military star card Example. Military star card You are a farmer who uses the cash method and a calendar tax year. Military star card You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. Military star card You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. Military star card However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. Military star card Repayment of income. Military star card   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. Military star card If the repayment is more than $3,000, a special rule applies. Military star card For details, see Repayments in chapter 11 of Publication 535, Business Expenses. Military star card Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. Military star card This includes business expenses for which you contest liability. Military star card However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. Military star card See chapter 4 for information on how to deduct farm business expenses on your income tax return. Military star card Prepayment. Military star card   Generally, you cannot deduct expenses paid in advance. Military star card This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Military star card Example. Military star card On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. Military star card In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. Military star card In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. Military star card An exception applies if the expense qualifies for the 12-month rule. Military star card See Publication 538 for more information and examples. Military star card See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. Military star card Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. Military star card The purpose of an accrual method of accounting is to correctly match income and expenses. Military star card Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. Military star card See Accrual Method Required and Farm Inventory , later. Military star card Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. Military star card Under this rule, include an amount in income on the earliest of the following dates. Military star card When you receive payment. Military star card When the income amount is due to you. Military star card When you earn the income. Military star card When title passes. Military star card If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. Military star card Inventory. Military star card   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. Military star card An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Military star card See Publication 538 for more information. Military star card Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. Military star card Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. Military star card The all-events test has been met. Military star card This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. Military star card Economic performance has occurred. Military star card Economic performance. Military star card   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Military star card If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. Military star card If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Military star card Example. Military star card Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. Military star card She entered into a contract with ABC Farm Consulting in 2012. Military star card The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. Military star card It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. Military star card Jane paid ABC Farm Consulting $2,000 in December 2012. Military star card Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. Military star card Economic performance for Jane's liability in the contract occurs as the services are provided. Military star card Jane incurs the $2,000 cost in 2013. Military star card An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. Military star card For more information, see Economic Performance in Publication 538. Military star card Special rule for related persons. Military star card   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Military star card Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Military star card For more information, see Internal Revenue Code section 267. Military star card Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. Military star card A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. Military star card A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. Military star card A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. Military star card A tax shelter. Military star card Note. Military star card Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). Military star card Family corporation. Military star card   A family corporation is generally a corporation that meets one of the following ownership requirements. Military star card Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. Military star card Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. Military star card Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. Military star card For more information on family corporations, see Internal Revenue Code section 447. Military star card Tax shelter. Military star card   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. Military star card Its principal purpose is the avoidance or evasion of federal income tax. Military star card It is a farming syndicate. Military star card A farming syndicate is an entity that meets either of the following tests. Military star card Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. Military star card More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. Military star card   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. Military star card   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. Military star card Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. Military star card This record should show the actual count or measurement of the inventory. Military star card It should also show all factors that enter into its valuation, including quality and weight, if applicable. Military star card Hatchery business. Military star card   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. Military star card Products held for sale. Military star card   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. Military star card , must be included in inventory. Military star card Supplies. Military star card   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. Military star card Deduct the cost of supplies in the year used or consumed in operations. Military star card Do not include incidental supplies in inventory as these are deductible in the year of purchase. Military star card Livestock. Military star card   Livestock held primarily for sale must be included in inventory. Military star card Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. Military star card See also Unit-livestock-price method , later. Military star card If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. Military star card Growing crops. Military star card   Generally, growing crops are not required to be included in inventory. Military star card However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. Military star card See Uniform capitalization rules below. Military star card Also see Uniform Capitalization Rules in  chapter 6. Military star card Items to include in inventory. Military star card   Your inventory should include all items held for sale, or for use as feed, seed, etc. Military star card , whether raised or purchased, that are unsold at the end of the year. Military star card Uniform capitalization rules. Military star card   The following applies if you are required to use an accrual method of accounting. Military star card The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. Military star card The costs of animals are subject to the uniform capitalization rules. Military star card Inventory valuation methods. Military star card   The following methods, described below, are those generally available for valuing inventory. Military star card The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Military star card Cost. Military star card Lower of cost or market. Military star card Farm-price method. Military star card Unit-livestock-price method. Military star card Cost and lower of cost or market methods. Military star card   See Publication 538 for information on these valuation methods. Military star card If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. Military star card However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. Military star card Farm-price method. Military star card   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. Military star card Market price is the current price at the nearest market in the quantities you usually sell. Military star card Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. Military star card If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. Military star card Unit-livestock-price method. Military star card   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. Military star card You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. Military star card The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. Military star card Unit prices and classifications are subject to approval by the IRS on examination of your return. Military star card You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. Military star card IRS approval is not required for these adjustments. Military star card Any other changes in unit prices or classifications do require IRS approval. Military star card   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. Military star card This method accounts only for the increase in cost of raising an animal to maturity. Military star card It does not provide for any decrease in the animal's market value after it reaches maturity. Military star card Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. Military star card   Do not include sold or lost animals in the year-end inventory. Military star card If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. Military star card The animals on hand at the end of the year are considered those most recently acquired. Military star card   You must include in inventory all livestock purchased primarily for sale. Military star card You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. Military star card However, you must be consistent from year to year, regardless of the method you have chosen. Military star card You cannot change your method without obtaining approval from the IRS. Military star card   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. Military star card If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. Military star card However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. Military star card This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. Military star card It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. Military star card Uniform capitalization rules. Military star card   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. Military star card This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. Military star card Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. Military star card Example 1. Military star card You are a farmer who uses an accrual method of accounting. Military star card You keep your books on the calendar year basis. Military star card You sell grain in December 2013 but you are not paid until January 2014. Military star card Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. Military star card Example 2. Military star card Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. Military star card Under this method, you include the sales proceeds in income for 2014, the year you receive payment. Military star card Deduct the costs of producing the grain in the year you pay for them. Military star card Special Methods of Accounting There are special methods of accounting for certain items of income and expense. Military star card Crop method. Military star card   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. Military star card You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. Military star card Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. Military star card    See chapter 4 for details on deducting the costs of operating a farm. Military star card Also see Regulations section 1. Military star card 162-12. Military star card Other special methods. Military star card   Other special methods of accounting apply to the following items. Military star card Amortization, see chapter 7. Military star card Casualties, see chapter 11. Military star card Condemnations, see chapter 11. Military star card Depletion, see chapter 7. Military star card Depreciation, see chapter 7. Military star card Farm business expenses, see chapter 4. Military star card Farm income, see chapter 3. Military star card Installment sales, see chapter 10. Military star card Soil and water conservation expenses, see chapter 5. Military star card Thefts, see chapter 11. Military star card Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. Military star card However, the following restrictions apply. Military star card If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. Military star card If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Military star card Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). Military star card Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. Military star card You may also have to pay a fee. Military star card To obtain approval, you must generally file Form 3115. Military star card There are instances when you can obtain automatic consent to change certain methods of accounting. Military star card See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. Military star card For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. Military star card Also see Publication 538. Military star card Prev  Up  Next   Home   More Online Publications