The most common resistance we get when speaking with companies regarding LIFO is related to its complexity. “It just doesn’t make sense” is a common theme. “I don’t know why anyone would go out of their way to make inventory accounting more complicated” is another often-used rebuttal. But the bottom line is that LIFO provides the single-largest tax deferral opportunity related to inventory for companies with consistent inflation. The common disconnect between LIFO’s benefit & the lack of understanding behind its mechanics prevents tens of thousands of companies from ever electing, and likely also constrains thousands of CPA firms from ever bringing up the idea to their clientele. The good news is that LIFO-PRO has recently added the “How LIFO Works” page to its website, clarifying LIFO for you. It takes a high-level approach to clarifying LIFO while avoiding getting too far into the weeds. It also provides a useful breakdown on how inventory costs are tracked & recorded before and after a company goes onto LIFO. What companies and CPA firms must also understand is this: anyone can become a LIFO expert, but is it really worth your time? LIFO-PRO’s opinion is no because:
- For companies, this will be something they work with once a year. This means that half of their time will be spent trying to retrace their tracks at the end of the year because they forgot how it was done last year.
- For CPA firms, companies on LIFO represents the minority of their client-base. This means that there is a limited availability of resources and time to allot to becoming a LIFO expert.
- For companies & CPA firms alike, LIFO-PRO’s offerings provides a solution for all companies on LIFO no matter what their situation is. Millions use Turbo Tax or some other tax service for their personal tax returns. The same concept can and should be applied for LIFO.
Some may object and state that, “It’s easy for us to say that a company or CPA firm should pay to outsource their LIFO calculation”. This is true, but think of it this way: why would a company leave it to their own devices to calculate the biggest inventory-related tax deferral tool to themselves while outsourcing purely compliance-related tax work such as year end tax returns to a 3rd party service providers? Filing a 1040 is largely considered to be a compliance task that everyone has to do. Outsourcing the work to maintain a cash flow tool that can accumulate to millions and sometimes even billions of dollars for a fraction of the cost of your annual tax deferral is not only reasonable, but often the most practical approach to take.
See our How LIFO Works page today to see our tips on clarifying LIFO!
How LIFO Works