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Top Tax Reform Opportunity: Expanded Use of Cash Method Accounting

Posted by Jane Spradlin on Tue, Oct 8, 2019

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top 6 with borderTop Tax Reform Opportunity: Expanded Use of Cash Method AccountingDid you feel like your taxes were minimized last year? If not, it’s possible you may have missed out on some opportunities.

Federal tax reform through the Tax Cuts and Jobs Act provided some of the best tax benefits to businesses in more than 50 years. The corporate tax rate was slashed from the graduated maximum of 35% to a flat 21%.

There also was big news for smaller businesses – the new Qualified Business Income Deduction offers possibly the greatest tax benefit to pass-through businesses in more than 60 years. QBI allows qualified small business owners to simply not pay income taxes on 20% of their qualified income in tax years 2018 through 2025.

While every tax situation is different and savings are not guaranteed, most of the businesses we work with had a good 2018 tax year.

Did you? If not, download our free Top 6 Tax Reform Opportunities for Business guide. Learn about the latest tax strategies for businesses to see if you could benefit.

Download the guide now, or check out one of the six strategies below:

Expanded Use of Cash Method Accounting

top 6 tax reform opportunities savings guide Pre-tax reform, C Corps with average annual gross receipts of more than $5 million for the previous three tax years generally weren't allowed to use the cash method. This also was the case for entities with average annual gross receipts of more than $5 million that were:

  • Partnerships with C corporation partners, or
  • Limited liability companies (LLCs) treated as partnerships for tax purposes with C corporation members.

Instead, these taxpayers had to use the accrual method of accounting. That limited their opportunities to manage taxable income over several years by altering the timing of income and deductions to minimize the cumulative federal income tax liability for those years.

Under the new tax rules, cash method accounting is allowed for these taxpayers if their average annual gross receipts for the three previous tax years didn't exceed $25 million. This change was beneficial for some of our clients.

For one of our business clients, we filed a change of accounting method, which reduced their book income from $2.2 million to $1.2 million. That resulted in an accrual cash reduction of $810,000.

From the $810,000 reduction of income, they saved over $300,000 in taxes. This business owner also took advantage of the new QBI deduction, which totaled $250,000 in his case.

Click below to watch a video of this Tax Reform Client Case Study.


Want to learn more? Click here to download our complete Top 6 Tax Reform Opportunities for Businesses guide or contact us here.

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Topics: Business tax planning, 2017 Federal Tax Reform

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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