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A Strong Start to April

   
We haven’t gotten off the sales rollercoaster we got on at week 4 of March, with week one of April getting off to a very strong start. Independent retailers report that their same store sales were up 5.18% compared to the same period in 2015. Customer counts were up 4.47 percent.

After several weeks of highly volatile sales totals, we should start to see things even out as we move further away from the Easter holiday.  

Same Store Sales        
% Change from last year
Same Store Sales – Previous Months
BGBC Partners Tax Update: Cash vs. Accrual
   
As a store owner, you are probably aware that there are different tax accounting methods allowed for purposes of reporting your store’s activities on the annual tax return. The two primary methods are the cash method and the accrual method. In this segment of our tax update we will discuss what both of these methods are, and then who is eligible to use the generally more favorable cash method.

The cash method of accounting is a method in which generally, all items that are gross income, whether in the form of cash, property or services, are included for the tax year in which actively or constructively received; expenditures are deducted for the tax year in which actually made. Constructive receipt, requiring inclusion, occurs in the year in which income is credited to an account, set apart for the grocer, or otherwise made available for draw at any time, or available so that draw could have occurred during the tax year if notice of intention to withdraw had been given. Income is not constructively received if the grocer’s control of its receipt is subject to substantial restrictions or limitations.

Generally, under the accrual method, income is included for the tax year when all the events have occurred that fix the right to receive the income and the amount of income can be determined with reasonable accuracy. Similarly, an expense is incurred and taken into account in the tax year in which all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to the liability.

As with the cash method of accounting, there are numerous exceptions and qualifications. For example, in some cases, advance payments may be deferred by an accrual method taxpayer. Under the economic performance rules, some liabilities (e.g., workers’ compensation and tort liabilities) are not deductible until paid.

In general, the IRS wants to limit the use of the cash method since by its nature lends itself to more manipulation than the accrual method. For example, under the cash method a grocer can manipulate the timing of receiving income and paying expenses more than under the objective rules of accrual method accounting like the “all events test”.

So who can and cannot use the cash method?

C corporations are generally prohibited from using the cash method, as well as taxpayers who are required to maintain inventories. However, there are exceptions to both of these, based on a gross receipts test. A C corporation with gross receipts less than $5 million can use the cash method.

A “small” taxpayer (having average annual gross receipts of no more than $1 million) can use the cash method. Businesses under common control have to be aggregated in measuring gross receipts (as you may recall, we discussed controlled groups in our last tax update).

Qualifying small businesses with average annual gross receipts of $10 million or less can use the cash method for an eligible trade or business (grocers are in an eligible business).

In some scenarios, accrual might be a better option. If you think you might benefit by using one method over another, consult your CPA. That way you can let them do the numbers while you do what grocers do best!

BGBC Partners, LLP is a full service certified public accounting and business consulting practice.  

For more information, contact Brad Bell, CPA or Steve Reed, CPA/ABV/CFF at BGBC Partners, LLP (317-633-4700).


For More Information,
Contact Mark Ehleben
877-435-9400 x1402
marke@fmssolutions.com
8028 Ritchie Highway | Suite 212 | Pasadena, MD 21122


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