Corporate Headquarters
6000 Western Place, Ste 800
Fort Worth, TX 76107
817.732.5494

Regional Business Development Contacts:

Texas Gulf Coast Region:
Candace Willingham

Midwest Region:
Diane Smith

Northeast Region:
Jennifer Weston

Southeast Region:
David DeGrand

South Central Region:
Jennifer Chin

Pacific Northwest Region:
Laura Collins

Upper Midwest Region:
Al Schmitt

Generate More Cash, Pay Less Tax With LIFO Accounting

Would you be surprised to learn that there is a substantial opportunity for profit existing within your current business inventory, and that all you have to do to take advantage of it is to fill out an election form, return it with your tax return and do a computation once a year? It's true, and it's called LIFO accounting.

Unfortunately, many business owners ignore this incredible opportunity. Why? Because they don't understand it, it seems confusing, or they think their tax advisor would take care of it if it were really as good as described. We talk to people every day who have no idea this tax benefit exists. Many of them recognize the acronym, but have assumed that it was not available or cost effective for them. Are you one of those people?

You should be taking advantage of this profit center and eliminating the obstacles to taking full advantage of this generous tax benefit. Here's a simple quiz to determine if LIFO accounting will help you in your business:

Do you carry inventory?
Do you expect inflation on this inventory in the future?
Are you paying income taxes now, or expect to pay them in the future?

If your answer to these questions, is "yes", LIFO accounting can become a valuable profit center! Here's how it works:

Each year, you compute the amount of inflation that has occurred in your inventory costs. There are a number of ways to do this, ranging from an analysis of the individual items in inventory to looking up the number in the Consumer or Producer Price Index publications. When this number is determined, a math calculation is performed which adds the inflation amount to Cost of Goods Sold, decreasing taxable income. You keep track of this extra tax deduction in an account called the LIFO Reserve. As long as inflation continues and inventory remains fairly steady or grows, the LIFO Reserve will grow.

The LIFO Reserve is not a permanent gift. It will remain tax-free for as long as you maintain the LIFO election, but when you rescind the election, it becomes income again and the tax is due. Many of you probably are asking, "Why do it then?" The answer is that the benefit of the tax break is in the period of time you maintain it, because the cash generated by LIFO is, in effect, an interest-free loan from the government. Each year you are on LIFO, you are generating additional cash you would not have had if it weren't for the LIFO election. This cash can be used for any purpose you wish. The only caution is that you should track it to be sure you can repay the loan in the future.

The following is an example of how your business can profit from LIFO accounting. Assuming only 2% inflation on an inventory of $2,000,000, over a 10-year period, the annual investment of the tax deferral nets a profit of about $250,000. (Assumes an annual return of 10%.)

LIFO accounting provides your business a substantial opportunity for additional profit. Take advantage of the best tax deferral available -- Consult a service bureau or accounting firm specializing in LIFO to find out how.

LIFO Accounting can be your next profit center.