We have discussed how the Tax Cuts and Jobs Act made sweeping changes that will impact all taxpayers, but the new tax law is also changing the game with respect to how small businesses are defined by the IRS. Under the Tax Cuts and Jobs Act, businesses with under $25 million in annual average gross receipts in the preceding three-year tax periods can benefit from the following changes available to “small businesses”:
Utilizing the cash method of accounting
Most taxpayers prefer the cash method of accounting because it allows for more flexibility around managing the amount of taxable income reported in a tax year. Before the Tax Cuts and Jobs Act, C-corps and partnerships with C-corp partners could generally use the cash method only if annual average gross receipts for the three-year tax period were under $5 million. This new rule applies to all taxpayers even if the production or purchase and sale of inventory is a material income producing factor.