If you own a small business, you may be able to use the cash method of accounting, thanks to the passage in late 2017 of the Tax Cuts and Jobs Act.
The act redefines small business as a taxpayer who has average annual gross receipts of $25 million or less for the three previous tax years and doesn’t serve as a tax shelter.
Here are some of the changes in the tax code for small business taxpayers.
- More small business taxpayers are eligible to use the cash method of accounting with the increase in the average receipts rising from $5 million to $25 million, which is indexed for inflation.
- Small business taxpayers are exempt from certain accounting rules for inventories, cost capitalizations, and long-term contracts.
- More small business taxpayers can use the cash method of accounting for tax years after December 31, 2017.
The IRS’s Revenue Procedure 2018-40 describes the procedures for obtaining automatic consent to change accounting methods to comply with the new provisions.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Tip adapted from IRS.gov