If your business is looking for ways to increase its cash flow or finds itself turning profitable and on the verge of paying income tax, looking at your tax accounting methods can highlight opportunities to accelerate deductions or defer income recognition. The result: reduced current-year tax expense and more cash for your business.
Companies that can benefit from a review of their accounting methods include those that have grown or become taxable in recent years as well as those that have acquired other businesses. What’s more, the IRS’s final tangible property regulations and the FASB’s new revenue recognition guidelines can impact the tax accounting of most, if not all, businesses, making it worth taking another look at your methods.
There are numerous benefits to reevaluating your tax accounting practices to identify more tax-efficient accounting methods, including:
- Tax deferral through accelerated expense deduction or deferred income recognition
- Accelerated deduction of items previously capitalized
- Catch-up adjustment for changing methods from prior-year activities
- Mitigation of IRS audit risk associated with impermissible methods
- Mitigation of disclosure requirements for uncertain tax positions
- Audit protection for prior years and a four-year spread period for any positive catch-up adjustments
Moss Adams has helped companies defer millions of dollars in taxes through filing accounting method change requests. We review your trial balance and book-tax adjustments to understand your current tax methods and identify areas of opportunity and risk. We can prepare the necessary tax filings and manage any questions that may arise from the IRS.
While there are numerous changes to consider, there are several key areas where companies can find significant benefit, including:
- Deferring income. There are specific strategies for advance payments, gift cards, and disputed receivables.
- Inventory tax planning. You may be able to reduce capitalized costs, discover strategies for cash and trade discounts, and explore different costing (LIFO, FIFO, and RIM) and valuation methodologies.
- Fixed assets. There may be opportunities to accelerate depreciation or amortization, identify assets disposed that are still being depreciated, and leverage the new tangible property regulations to reclassify capital expenditures as deductible repairs.
- Accelerating deductions. Opportunities often exist for prepaid expenses, bad debts, self-insured medical costs, software development costs, property taxes, rebates, and compensation-related accruals.
- Using the overall cash method of accounting. Service-oriented businesses may be able to use this method.