Momentum - Business to Business Online Magazine MOMENTUM August 2019 | Page 38
T. MARK RUSH, CPA
Partner
Ham, Langston & Brezina, LLP
[email protected]
E
PART 10
of a Series on the New Tax
Cuts and Jobs Act (TCJA)
ffective for tax years beginning in 2018, the
Tax Cuts and Job Act (TCJA) includes several
changes to the rules governing the choice of
accounting methods by taxpayers.
In certain situations, the Act raises the gross
receipts limit used to determine which taxpayers can
use the cash method of accounting:
• The exception from the uniform capitalization rules for
small taxpayers is expanded for tax years beginning
after Dec. 31, 2017, to apply to taxpayers whose
average annual gross receipts for the immediately
preceding three years didn’t exceed $25 million (up
from $10 million under pre-TCJA law), and is made
available to both producers and resellers of both real
and personal property, rather than just resellers.
• The TCJA provides that, for tax years beginning after
Dec. 31, 2017, taxpayers that have average annual
gross receipts of $25 million or less during the
preceding three years (up from $10 million under
pre-TCJA law) aren’t required to account for the cost
of goods sold using inventories under Code Sec.
471 (and, thus, aren’t required to use the accrual
method of accounting), but rather may use a method
of accounting for inventories that either (1) treats
inventories as non-incidental materials and supplies,
or (2) conforms to the
taxpayer’s financial
accounting treatment
of inventories.
• The TCJA provides
that, in tax years
beginning after Dec.
31, 2017, corporations
and partnerships that
have a corporation as
a partner satisfy the
gross receipts test
for the tax year if the
taxpayer’s average
annual gross receipts
are under $25 million
for the three tax—year
period ending with the
tax year that precedes
the tax year for which
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the taxpayer is being tested. The $25 million limit is
adjusted for inflation for tax years beginning after
2018.
The Act requires (or allows) taxpayers in certain
circumstances to recognize income for tax purposes no
later than the year in which it’s recognized for financial
reporting purposes:
• The TCJA provides that, for an accrual basis taxpayer,
the all events test with respect to any item of gross
income (or portion thereof) in tax years beginning
after Dec. 31, 2017, won’t be treated as met any
later than (and, thus, these taxpayers must recognize
income no later than) the tax year in which the income
is taken into account as income on (1) an applicable
financial statement (AFS) or (2) under rules specified
by IRS, another financial statement.
• The TCJA allows taxpayers in tax years beginning
after Dec. 31, 2017, to defer the inclusion of income
associated with certain advance payments to the
end of the tax year following the tax year of receipt
if that income also is deferred for financial statement
purposes.
These changes may have an impact on your choice
of accounting method, and cause you to want you to
review and, possibly, revise those choices.