Tax Tips

Some Small Business Taxpayers Need Not Use Accrual Method

In a new revenue procedure, the IRS excepts some smaller taxpayers from the need to account for inventories and use an accrual method for purchases and sales of merchandise, and the Service also specifies how taxpayers can obtain automatic consent to change to the cash receipts method. These rules apply to taxpayers with average annual gross receipts of $1 million or less that also meet a "conformity requirement." To satisfy this requirement, the taxpayer must regularly use the cash method in preparing its books, records, and reports (including financial statements) to shareholders, partners, creditors, etc., for the current tax year and the prior three tax years.