Accounting Methods & Inventories
The timing of income and expense recognition and the appropriate determination of capitalizable costs are essential elements of tax planning for every business.
Andersen Tax has the knowledge and experience necessary to help you address tax accounting method issues effectively, whether in the context of planning, compliance or IRS examinations.
Andersen Tax professionals have years of experience practicing before IRS National Office handling accounting method changes, rulings, requests for technical advice and closing agreements. Our professionals work with businesses of all sizes, whether organized as a C corporation, S Corporation, partnership, or individual taxpayer. Our focus is on helping our clients achieve their goals, including risk minimization, cash generation, or simplification. Tax methods of accounting should be evaluated in the event of any major transaction.
Some of the accounting methods planning services we provide include:
Accounting Method Reviews
Andersen Tax reviews your trial balance and book/tax reconciling items to identify potential opportunities and areas of exposure. Book and tax treatment of many items are different due to the tax requirement to account for income and expense when legal rights and obligations fix as compared to book accounting that matches related income and expense.
Andersen Tax identifies opportunities and exposure items, handle all administrative filings and interface with IRS to obtain permission for any non-automatic or automatic method changes to correct or optimize the company’s methods of accounting. Andersen Tax can assist with the implementation of the new methods and any compliance issues that arise. Accounting method reviews can enhance net operating losses that are available for carryback and can resolve issues that may otherwise require disclosure. They can also provide cash that can be used for debt service or business expansion. Taxpayers who are carrying forward net operating losses can use accounting method changes to manage alternative minimum tax liability.
Inventories are a large dollar item on many company balance sheets. The treatment of inventories for book and tax purposes can be quite different. The determination of LIFO inventories, allowable mark-downs, other inventory reserves, and UNICAP costs are a few of the areas in which book inventory accounting differs from tax accounting. Experienced professionals at Andersen Tax can review your inventory accounting and suggest changes that will address exposure and capture opportunities. The administrative process for changing tax accounting methods provides back-year audit protection, allowing the correction of erroneous methods prospectively with no penalty or interest exposure to the company.
Many costs that are properly capitalized for book purposes may be currently deducted for tax purposes. Examples include engineering costs, certain prepaid expenses, certain transaction costs, recurring repairs and maintenance, abandoned property, cost of removal and demolition costs. Andersen Tax can identify these opportunities and file the necessary applications to change the company’s tax accounting methods for these items.
Mark-to-Market Elections for Traders (Sec. 475)
Individuals and companies that actively trade securities may benefit from a voluntary Sec. 475 mark-to-market election. This election converts capital losses from trading activities to ordinary losses that can offset ordinary income without limitation. Andersen Tax can assist with the preparation of the election and the required method change filings. We also provide advice on the recordkeeping necessary to designate securities held for investments.