IRS Simplified Tax Accounting Rules for Small Businesses

The IRS issued proposed regulations to adopt the simplified tax accounting rules for small businesses under the Tax Cuts and Jobs Act (TCJA).

For tax years beginning in 2019 and 2020, these simplified tax accounting rules apply for taxpayers having average annual gross receipts of $26 million or less (known as the gross receipts test).

Prior to the TCJA, certain taxpayers could determine whether they were eligible to figure taxable income under the cash method of accounting by meeting a different gross receipts test.  That gross receipts test was met if the taxpayer’s average annual gross receipts for all prior taxable years did not exceed $5 million.

After the TCJA, a taxpayer that meets the gross receipts test can use the cash method if average annual gross receipts for the three-taxable year period ending immediately before the current taxable year are $25 million (adjusted for inflation) or less, can be exempt from the uniform capitalization rules, and can be exempt from the requirement to use an inventory method.

Posted in IRS, Taxes