2018 Tax Act: Business Taxes- Cash Method of Accounting
The prior law is $5M, three-year average annual growth receipts test barring the cash method of accounting for corporations and partnerships with corporate partners is increased to $25M and indexed for inflation.
The requirement for such this satisfies the requirement for all prior years is repealed.
Observation: The exceptions to the prior law under the required use of the accrual method for qualified personal service corporations and taxpayers other than C corporations is retained. Thus qualified personal service corporations, partnerships without C corporation partners, S corporations, and other pass-through entities are allowed to use the cash method without regard to whether they meet the $25M in gross receipts test, so long as the use of such method clearly reflects income.
This is a real win for small businesses expanding the amount to $25M. If a small business caries large accounts receivable balances it could put the company in a cash bind to pay its taxes at year-end. The cash basis allows for recognition of taxable income only when the cash has been collected.