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Need Some Deductions for 2011?
Don't overlook these!
Updated for 2011
Accounting Methods
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Inventoriable Items Treated as Nonincidental Materials and Supplies
Under Revenue Procedure 2002-28, if your principal business activity is an eligible activity and has average annual gross receipts of $10 million or less for the previous three years, you can use the cash method even if inventory is an income-producing factor.
Moreover, an eligible business may choose not to keep an inventory.
If you choose not to account for inventory, you may treat inventoriable items as nonincidental materials and supplies under Reg. Section 1.162-3.
This means, the cost of inventoriable items...
- Purchased for resale to customers or
- For use as raw materials for producing finished goods for resale, or
- For use in the performance of a service (e.g., a roofing contractor that installs roofing) -
Must be deducted...
- In the year provided to customers, or
- In the year you pay for such items
- Whichever is later.
A qualifying small business taxpayer may determine the amount of the allowable deduction for inventoriable items treated as nonincidental material and supplies by using one of the following methods:
- A first-in-first-out (FIFO) method
- An average cost method
- A specific identification method
Whatever method is used, it must be used consistently.
LIFO: The last-in-first-out method may not be used.
Next:
Accounting Methods-Cash Method: Deducting Material and Supplies: Text of Reg. Sec. 1.162-3
Related Links
- Using an agent and Constructive Receipt
- Examples of constructive receipt
- How to Elect an Accounting Method on Schedule C
- More Than One Business
- Changing Your Accounting Method
- Cancellation of debt
- Bounced Checks Under the Cash Method
- Receiving Advance Payments Under the Cash Method
- Guaranty or Warranty Contracts Under the Cash Method.
- The Accrual Method
- Determining When Income is Earned and Expenses are Incurred
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