Small Business Taxpayers ($25M)

How Being a Small Business Can Increase Deductions and Ease Administrative Burden

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.

**Final regulations were issued (TD 9942) on December 23rd, 2020 providing additional guidance to entities that may fall in and out of the “tax shelter” exception as well as additional examples on the definition of books and records for the treatment of inventory.

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Julie Helms, CPA | Director, Specialty Tax Services

The Lurie Difference: A Streamlined Process

Lurie’s Specialty Tax Services advisors offer unique tax savings and reduction strategies for businesses and their tax concerns. The team works closely with you and your service partners to provide counsel and execution on matters that extend far beyond compliance. This close collaboration provides not only coordinated, seamless service with specialists who have deep expertise, but also delivers true dollar cost savings. Here is what to expect: 

We Examine Your Indicators

Have an average of $25M or less in gross receipts for the past three years

We Help You Uncover Benefits

Ability to utilize the cash method of accounting, no longer required to complete a 263A computation, can write-off inventories

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