I hope you have managed to stay safe and well! We focus on resolving tax issues in Prince William County and throughout the lower Northern Virginia area.

As December was drawing to a close, the Internal Revenue Service finalized updates to various tax accounting regulations to adopt the simplified tax accounting rules for small businesses enacted by the law known as the Tax Cuts and Jobs Act (TCJA). You can find the regulations at the following link:  https://www.irs.gov/pub/irs-drop/td-9942.pdf

For 2020 and 2021, these simplified tax accounting rules will be available to taxpayers/businesses with average annual gross receipts of $26 million or less (its inflation adjusted) This is referred to as the gross receipts test (entities classified as tax shelters, are not eligible for the simplified rules) In order to meet the gross receipts test and be permitted to use the cash method of accounting (even if you have inventory), your average annual gross receipts for the three-tax-year period ending immediately before the current tax year, had to have been $25 million ( this figure is adjusted to $26 million for 2020 and 2021(inflation)) or less.

For those businesses that maintain inventory, the TCJA also exempted small business taxpayers from the Sec. 263A uniform capitalization rules, and added an exception to the requirement forcing businesses to use an inventory method, provided their inventory is treated as nonincidental materials and supplies (NIMS), or in accordance with the applicable financial statement (AFS). If a business does not have an AFS, they are allowed to use their books and records.

In another clarification to the proposed regulations, the final regulations provide that a taxpayer that uses the NIMS inventory method, may not use any other method described in the Sec. 471 regulations or the last-in, first-out (LIFO) method. Those that adopted the regulations for the 2018 or 2019 tax years, should review how their inventory was handled, and methods used. https://brtaxaccountant.com/