LLC's partner is an S-Corp, two different accounting methods

I would like to get some feedback on this business structure.

I currently own 100% of an S-Corp, which was establshed years ago. Recently, I have established a new company, an LLC, which is 50% owned by my S-Corp, and 50% owned by another family member.

The LLC is going to use the accrual method of accounting, whereas my S-Corp currently uses the cash basis of accounting. My S-Corp has no inventory, and its gross receipts are under $5 million, so as far as I know, it is not required to be on accrual method of accounting, and I would just prefer to keep it on the cash basis anyway.

However, considering that the LLC's income is based on accrual accounting, and it flows back to my S-Corp (via a K1), would I need to change my S-Corp's accounting method to be accrual, so that both companies' accounting methods match? Or is it permissible to have two separate accounting methods?

By the way, the two companies will never do business with each other, nor will they ever shift income or inventory around.

I look forward to your responses. Thank you.

Maxwell50,

Your S corp can change it's accounting method only if the IRS gives you permission to change.

If it is easier for the corporations, they can keep several sets of books for different purposes. Some corporations need to reconcile their books on schedule M-1.

Keep the S corp on the cash basis.

What does your accountant suggest?

Clydewolf,
My accountant has a preference that my existing S-Corp should be on cash basis, for the reason that I have some leeway to shift income between two fiscal years, by doing things like paying all open invoices by December 31.

I am definitely going to keep two sets of books for both companies, and since they really do serve two separate business purposes, I am fine with using two different accounting methods.

I really don't want to overlook anything that would mandate that both companies should be using the same accounting method.

Do you know what would mandate two companies to reconcile their books on a single schedule M-1? That is something that I want to avoid.

max, i really wish we had more CPAs and accountants here on these boards. that would ROCK! but the reality is that MOST (if not all) those here know taxation on the edges. we are more like general practioners in the medical field (meaning taxes here). we cant really tell you why your vision gets all blurry after dinnertime and why your fingers start to tingle ... but we can tell you it sounds neurological and send you to the right person for further testing. for issues like what you are asking, we would do the same. refer you to a CPA or an accounting firm.

i have to ask this question ... why are you not comfortable with the advice you have already received from your professional on retainer? further, why would you seek advice from people whom you dont know anything about to bump it against the advice with someone with whom you have a relationship?

1MO,
Let's just say that I do not always trust my CPA to do things correctly.

Maxwell,

Read 1_more_opai's note again.
Then read your response and ask yourself, "Should I find a new CPA?"