Small Business Taxpayers ($25M)

The Tax Cuts and Jobs Act (TCJA) provided some simplification options for small business taxpayers (generally defined as having an average gross receipts of $25M or less, adjusted for inflation). Historically, depending on the entity type or industry, Companies may have had different requirements for their overall accounting methodology and miscellaneous calculations that had to be completed. Now if you are under the $25M gross receipts threshold, you could have the potential to utilize the cash method of accounting, expense inventory, or no longer be required to complete the burdensome 263A calculation.

To know if you qualify as a small business taxpayer, it is important to understand the entity structure and if any additional entities would need to be included within the calculation of gross receipts. If you can fall under the gross receipts threshold, then you could file an accounting method change to utilize the cash method of accounting, expense inventory, no longer compute the additional inventory calculation of 263A, or any combination of these options.

Typically, the cash method of accounting is less burdensome than the other overall methods of accounting. Expensing inventory at the end of the year will result in an initial deduction in the year the change is made. No longer computing the additional inventory expenses required to be added to ending inventory under 263A not only reduces the compliance burden of this provision, it would also most likely result in an additional deduction in the year the change is made.