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Small Business Accounting Method Changes Under TCJA



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Thanks to the Tax Cuts and Jobs Act (TCJA), small businesses can now receive accounting-related relief by using the simpler and more-flexible cash method. The Internal Revenue Service issued guidance last month on new tax law changes that allow small business taxpayers with average annual gross receipts of $25 million or less in the prior three-year period to use the cash method of accounting. The cash method is allowed even if the purchase, production or sale of merchandise is an income-producing factor for these taxpayers. These are a welcome change for small businesses.

Among the lesser known provisions of the TCJA are several accounting method changes for tax years beginning after 2017. Key changes include:

  • the rules businesses must follow when recognizing income on their financial statements
  • a more lenient gross receipts test for businesses seeking to use the cash method of reporting
  • eased requirements for inventory maintenance
  • and more.

In most cases, a small business wishing to change its method of accounting must apply for and secure the prior consent of IRS. Careful consideration should be given to switching. Contact us if you have questions about your business. (IR-2018-160)

LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.