Small Biz to $25 Mil Cash v. Accrual

TCJA expands availability of the cash method to all (except tax shelters), including businesses with inventory, so long as they meet the new $25 million gross receipts test. The cash method generally delays revenue recognition and accelerates expensing vs. the accrual method. For the same small businesses meeting the new $25 million gross receipts test, TCJA also drops the requirement to capitalize costs under the UNICAP rules of Sec. 263A. Small businesses meeting the new $25 million gross receipts test can now more closely align their inventory accounting with the company’s accounting for financial statement purposes and reduce reconciliation and timing differences on tax returns.

When contemplating an accounting method change, give consideration to:
• Long term growth strategies of the business and its related parties
• Timing of required tax filing and income/expense adjustments
• Modernization of accounting and ERP systems

In practice, tax accounting requirements are considered along with other business needs when developing and evolving accounting and ERP systems. Hence the development and refinement of modern systems to achieve compliance, analyze business and optimize cash flow opportunities. Executive summary with your subscription to SoundCPA Insights for Business