Tax Cuts and Jobs Act: Changes to cash method of accounting for some businesses

November 15, 2018

The TCJA (Tax Cuts and Jobs Act) allows small business taxpayers with average annual gross receipts of $25 million or less in the prior three-year period to use the cash method of accounting. An increase from the 2017 limit of average annual gross receipts of $5 million or less in the prior three-year period.

The law expands the number of small business taxpayers eligible to use the cash method of accounting and exempts these small businesses from certain accounting rules for inventories, cost capitalization and long-term contracts.

As a result, more small business taxpayers can change to cash method accounting starting after Dec. 31, 2017.

Revenue Procedure 2018-40 provides further details on these changes.