Archive for April 4, 2024

How Inflation Drives LIFO

How Inflation Drives LIFO

Understanding LIFO as an effective mitigation strategy for inflation is an economic challenge that significantly impacts a wide range of businesses, from manufacturers and distributors to retailers. Amidst the challenge of rising costs for raw materials and finished goods, the Last-In-First-Out (LIFO) inventory method emerges as a potent strategy to navigate this tricky economic landscape.

How LIFO Contributes To Tax Savings

At its core, LIFO operates by matching the costs of goods sold with the most recent, and typically higher, costs, while the oldest costs remain tied to unsold inventory. This process results in a higher cost of goods sold, which in turn translates into lower taxable income, thereby reducing tax liability. This mechanism helps businesses effectively combat the adverse effects of inflation.

The Criteria For Adopting LIFO

Adoption of the LIFO method isn’t universal. It’s particularly beneficial for businesses experiencing inflation and maintaining an inventory valued at over $2M. The potential for significant tax savings, achieved annually, transforms LIFO into a sustainable method to manage the potential repercussions of inflation.

The Power Of Reinvestment With LIFO

The use of the LIFO method not only provides tax relief but also frees up valuable cash flow for businesses. By lowering tax liabilities, these extra funds can be funneled back into the business, leading to reinvestment opportunities. These might include investing in technological upgrades, expanding the workforce, or scaling operations, thereby further enhancing business growth.

Adopting LIFO

The decision to adopt LIFO requires careful and strategic consideration of the client’s inventory flow and overall financial position. It’s not a one-size-fits-all solution. However, if a client qualifies, LIFO can emerge as a powerful tool to help combat the negative effects of inflation, strengthening their financial resilience.

LIFO represents an effective strategy that can help businesses counteract the impact of inflation, lower tax liabilities, and create opportunities for reinvestment. At Source Advisors, we stand ready to provide expert guidance on navigating this complex yet highly beneficial financial planning tool.

Have a question about LIFO? Contact Us Today

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Crapo On President’s Budget: “Higher Taxes For The Majority To Support Government Subsidies For The Few”

Crapo Blasts President’s Budget: “Higher Taxes For The Majority To Support Government Subsidies For The Few”
At hearing with Treasury Secretary Yellen, Crapo highlights contrast between pro-growth tax policy and proposals that would stifle economic growth

Washington, D.C.–At a U.S. Senate Finance Committee hearing on President Biden’s Fiscal Year 2025 budget, Ranking Member Mike Crapo (R-Idaho) highlighted the nearly $5 trillion in new and increased taxes included in the President’s budget proposal—tax proposals that would slow the economy and be felt by virtually all Americans.  Ranking Member Crapo highlighted the contrast between the President’s tax proposals versus Republicans’ Tax Cuts and Jobs Act (TCJA), which led to one of the strongest economies in generations.  Senator Crapo secured commitments from U.S. Department of the Treasury Secretary Janet Yellen to support extending Republicans’ pro-growth tax proposals.

Click HERE to watch Senator Crapo’s opening statement.

Click HERE to watch Senator Crapo Question Secretary Yellen.

On whether the President would support extending the individual tax provisions in the Tax Cuts and Jobs Acts:

Crapo: According to the White House, under President Biden’s 2025 budget “no one earning less than $400,000 per year will pay a penny in new taxes.” . . . I agree it is a bad idea to raise taxes on Americans suffering from record inflation at this point.  Interestingly, the President’s budget is essentially silent on extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which expire next year.  A simple yes or no question: Are you aware that the Tax Cuts and Jobs Act, which Republicans passed in 2017, reduced taxes for Americans of all income groups, including those earning less than $400,000 per year?

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The Importance Of Maintaining Business License Compliance

The Importance Of Maintaining Business License Compliance

As a business owner, it is essential to remain compliant with state and local laws to ensure smooth operations. One of the most important requirements is obtaining your business license and permits and then registering for sales and use tax in each state, locale, or jurisdiction where you have met nexus. Many business owners tend to forget, however, that reviewing and updating these credentials regularly is just as important as obtaining them.

Conducting an annual business license and registration review will ensure compliance with the laws of each state where you conduct business. It can help you avoid costly penalties and fines and will identify areas where your business may be at risk of non-compliance.

An annual review will help you identify any changes or updates that should be made to your license(s) and permits(s) and will ensure that you are aware of any new requirements that may have been added since your last review. This is particularly important if you have expanded your business operations to include new products or services, as you may need to obtain additional licenses or permits to ensure that you are operating within the law.

At Thompson Tax, we understand that maintaining these requirements can be overwhelming, and we are here to help. Contact us today to learn more.

Have a question? Contact Dan Thompson, Thompson Tax Team.

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Taxes And The Olympics

Taxes And The Olympics

On March 1, the Commission on the State of U.S. Olympics & Paralympics issued a report: Passing the Torch – Modernizing Olympic, Paralympic, & Grassroots Sports in America. Per the announcement, this commission was directed by Congress to study recent reforms of the U.S. Olympic and Paralympic Committee to improve the organization’s “ability to fulfill its mission.”

The word “tax” appears 39 times in the report. Tax law changes suggested:

Page 17 – allow taxpayers to deduct the costs for their children to participate in youth sports.

Page 18 – allow taxpayers serving as volunteer coaches for youth sports to deduct out-of-pocket expenses.

Page 18 – to help support youth and grassroots sports, consider new revenue sources such as from an excise tax on legal sports betting and a voluntary checkbox on income tax forms for donations

The report notes the 2016 tax law change to add an exclusion from income for the value of the metal in gold and silver prize medals and bonuses winners receive (unless the taxpayer has AGI determined with the value of Olympic winnings above $1 million – IRC §74(d))

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