Accounting Method Changes under TCJA for E-Commerce Sellers

I just returned from the CCH User Conference in Miami which included some of the top experts on the Tax Cuts and Jobs Act (TCJA). One of the sessions that I attended covered the opportunities for major tax savings under the accounting method changes now allowed. These are major decisions and a thorough analysis should be completed.

Cash Method Allowed for Larger Businesses
Cash method permitted for sellers under 25 million average gross receipts for the past 3 years. With the way Amazon pays at year end there may be an opportunity for some savings.

Inventory Methods (deemed the wild wild west by an IRS representative)

There is a lot of controversy in this area, so we will stick to what the code entails. We have been told by the IRS to not expect much guidance as they have been instructed by the treasury to not release “their own rules”. An accounting method change (form 3115) is required for the below methods).

1. Account for inventory as non-incidental materials and supplies. If following the deminimus safe harbor election then you would be allowed to expense any inventory purchases under 2,500 (5,000 with audited financials). The underlying effect causes an increase to cogs in the year of change, no adjustment for prior inventory balances unless

2. Account for inventory on the taxpayer’s method of accounting in an applicable financial statement(AFS). If no AFS the books and records of the taxpayer prepared in accordance with the taxpayers accounting procedures. ( Think twice about getting audited financials! Who is terrible at keeping track of your inventory?)

As with all our posts, consult your CPA( or us) for how you can take advantage of these changes.