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The process of selecting appropriate accounting methods can be overwhelming - especially considering the need to manage taxable income for broader attribute management. The vast range of methods and elections available today, coupled with the resource constraints companies face, often result in a company using unfavorable accounting methods and leaving both permanent and temporary tax savings on the table. Companies should regularly evaluate their accounting methods and elections to meet their overall tax objectives. This review will allow companies to identify planning opportunities at the earliest time possible.
Why should you consider an accounting method study?
An accounting method study may identify opportunities to defer income or accelerate deductions to reduce cash taxes and improve cash flow, or to accelerate income and defer deductions when those results may be beneficial, such as when tax rates may increase or additional income may result in permanent tax benefits from the interaction of accounting methods and other tax rules.
How can PwC help?
Companies should regularly evaluate their accounting methods for tax purposes, identify planning opportunities and exposure items at the earliest possible time, and take corrective action. Through analysis of several categories of items, including timing of income and deductions, cost capitalization issues and other accounting method issues, companies can evaluate their ability to utilize, change to, or adopt advantageous accounting methods.
PwC’s Accounting Methods team can help your company understand the impact of business decisions on accounting methods and inventory calculations − and the impact of accounting methods and inventory calculations on your business..
We can help you with
Increasing cash flow and deferring income taxes by implementing more favorable, allowable elections and methods
Taking a fresh look at your tax position to better understand opportunities and exposures
Reducing potential IRS audit adjustments by bringing improper methods of accounting into compliance
Identifying new opportunities that may have arisen due to law change or change in IRS positions/policies
Simplifying calculations to free up important financial accounting and tax department resources
Learn more about STS Accounting method services
- Accounting Method Studies
- Section 263A Capitalization
- Revenue Recognition Analysis
- Meals, Entertainment, and Fringe Benefit Studies/Lobbying
- Settlements and Judgements Analysis
Accounting Method Studies
PwC works with companies to analyze the methods used to determine the timing of income and expense recognition (e.g., revenue, deductions, cost capitalization and recovery, inventory, leases) and identify beneficial accounting methods based on the client’s specific facts and desired tax objectives.
Section 263A Capitalization
PwC assists companies to apply complex Section 263A (UNICAP) regulations by analyzing the methodologies used to capitalize required costs. Section 263A applies to all property produced (i.e. inventory and self-constructed assets) and/or held for resale by a taxpayer and, while complex, the regulations provide flexibility in the capitalization methods used which can align to a company’s overall tax objectives.
Revenue Recognition Analysis
PwC assists companies to:
- Analyze the effect of ASC 606 or IFRS 15 on tax accounting methods
- Identify and evaluate the effect of the new tax accounting income accrual and advance payment rules
- Consider the extent to which a special method of accounting, such as long term contracts, may apply and whether a change to that method may be beneficial
- Help navigate IRS method change guidance to facilitate properly implementing required or desired accounting method changes
- Prepare and file Form 3115, including computing Section 481(a) adjustments
Meals, Entertainment, and Fringe Benefit Studies/Lobbying
PwC works with companies to:
- Identify and properly categorize expenses for meals and entertainment (M&E) and certain fringe benefits that qualify (in whole or in part) for a current tax deduction using sophisticated statistical sampling technique
- Apply recently published regulations on qualified transportation (especially parking) and commuting benefits provided to employees and minimize disallowed expenses.
A PwC lobbying expenditures review may help politically active companies – like those operating in highly regulated industries – identify and properly account for deductible expenses and expenses associated with lobbying and political activities, which are non-deductible under Section 162(e).
Settlements and Judgements Analysis
The PwC Settlements and Judgments practice can help companies to take advantage of the tax opportunities and avoid the pitfalls associated with settlement awards. Additionally, companies may be able to identify opportunities to reduce the impact of settlements on taxable income or take advantage of the mitigation provisions, potentially decreasing taxes and increasing cash flow.
Accounting method change for inventory shrinkage may benefit retailers experiencing thefts
In the current environment, retailers may benefit from using the GAAP inventory shrinkage method as their tax method to increase the estimated amount of inventory shrinkage included in cost of goods sold and reduce taxable income.
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