Latest Guidance for Changing Simplified Accounting Methods for Small Business Taxpayers
Four years after the Tax Cuts and Jobs Act was signed into law, the IRS continues to issue guidance for its implementation. Rev. Proc. 2022-9 is the last in a series of releases to assist taxpayers changing their accounting methods to come into compliance with the simplified tax methods for small business taxpayers. In accordance with Rev. Proc. 2022-9, taxpayers can obtain automatic consent to change methods of account to comply with the final regulations issued in January 2021.
The simplified methods applicable to qualifying taxpayers with average annual gross receipts in the three prior years of $26 million or less, include
- Overall cash method of accounting,
- Simplified accounting for inventory
- Exemption from accounting for uniform capitalization of costs to inventory (IRC Section 263A); and
- Completed contract method of accounting for construction contracts
Provisions in Rev. Proc. 2022-9 clear away earlier elections and options for accounting method changes which were available with the proposed regulations. Rev. Proc. 2022-9 permits an automatic consent to the change in accounting methods described in the guidance. An automatically approved method change request is filed on Form 3115 with a timely filed return. It is effective as of the first day of the tax year of the return filed. This presents an opportunity to potentially take advantage of tax planning after the tax year has ended and before the return is filed.
It is important for all qualifying small business taxpayers to assess their current methods of accounting for tax purposes and consider if the final regulations offer an opportunity to defer income, accelerate expenses, and/or increase efficiency and understanding of their business’ taxable income.
Your Cherry Bekaert tax advisor can work with you and your business to apply the final regulations and make accounting method changes as needed.