On a client’s federal return, we’re changing accounting method from accrual to overall cash method for small business taxpayer. We are having difficulty with entries to our tax software to adjust the California return back to accrual basis. We get a diagnostic that federal ordinary income must be the same on the federal and California returns in order to e-file the California return. However, federal ordinary income is cash basis, and our software will not let us override and adjust California ordinary income back to accrual basis on an e-filed return.
If we set up two separate client files in the tax software, one for federal and one for California, we still seem to have circular entries when we try to adjust California back to accrual basis. (It seems that federal ordinary income has to go back to accrual basis on the California return to make it work?) Please advise.
I would suggest extending the CA return. It is likely we will get conformity beginning in 2019, with a way to make the adjustment in 2018. We’ll send flash emails and include in podcasts if/when it happens. We’re hoping for late June