Simplified method for inventory costs eases recordkeeping, but is not for every taxpayer

Article Abstract:

Valuation of inventories is affected by Section 263A of the Tax Reform Act of 1986, requiring uniform capitalization of assets. A simplified method of accounting for inventories held by retailers and wholesalers is applicable when either first-in, first-out (FIFO) or last-in, first-out (LIFO) valuation methods are used. The simplified capitalization method is not applicable to manufacturers' inventories. The basics of the method involve: (1) allocating indirect inventory costs to four categories (off-site storage, purchasing, processing, and general and administrative expenses); (2) using different valuation formulas dependent upon whether FIFO or LIFO is in effect; and (3) restating beginning-of-period inventory values over a four-year period. Companies electing the simplified method cannot change to another capitalization method without IRS approval.

Laws, regulations and rules, Valuation, Inventory control, Assets (Accounting), Market capitalization

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Benefits of Simplified Employee Pensions expanded by Tax Reform Act of 1986

Article Abstract:

The Tax Reform Act of 1986 permits small businesses to establish Simplified Employee Pensions (SEPs), based upon salary deferrals. An SEP is a retirement fund established by an employee to which the employer makes voluntary contributions. The SEP reduces employers' taxable income by the amounts deferred or contributed. The contributions in an SEP are also not taxable for the employees. The IRS rules governing the qualification of retirement funds as SEPs, the nondiscrimination regulations, the reporting and disclosure rules, the contribution limitations, and the tax consequences of forming an SEP for both the employer and the employee are discussed. Elective and nonelective SEPs are covered. SEPs are less costly to employers and easier to administer than other retirement and pension benefit plan arrangements.

Taxation, Pension funds, Employee benefits, Simplified employee pensions

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Carrying inventory below cost can create tax savings

Article Abstract:

The author describes in detail inventory cost accounting methods which result in tax savings primarily from taking advantage of the time value of money.

United States, Accounting Methods, Tax Management, Accounting

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