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 36 MOMENTUM 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.