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February 18, 2016

When to Review Your UNICAP Calculations

Everyone is working on their year-end accounting.  As accounts are being reconciled and inventory is taken, have you reviewed your calculations for UNICAP?  We previously provided detail on the UNICAP calculations.  In summary, there are certain costs normally expensed that must be capitalized as part of inventory.  Each year, indirect costs including mixed service costs should be analyzed to determine the proper amount to allocate to inventory.  Using the same allocation percentages year after year may not be correct.  New employees may have been added to the accounting department, a new lease agreement, or new technology costs could all change those allocation percentages.

Maybe your company has never been subject to the UNICAP rules.  Are you sure you still fall under the exceptions?  As long as a taxpayer is allowed to use the cash method of accounting, they are not required to apply these capitalization rules.  The other exception is for resellers whose average gross receipts for the three previous years do not exceed $10 million.  As your business continues to grow, don’t forget to review each year and make sure you continue to be exempt from this rule.

So as you wrap up your year-end accounting, don’t forget to consider your UNICAP calculations. Contact an Anders tax advisor to discuss.

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