Insights: Article

Tax Reform Opportunities for Small Taxpayers

By Andrea Mouw

November 08, 2018

Are you a business taxpayer with annual gross receipts of $25 million or less? If so, you may be eligible to take advantage of new small taxpayer safe harbors that could generate significant tax savings and simplify your tax returns in future years!

Many of the provisions of the Tax Cuts and Jobs Act (TCJA) become effective for tax years beginning after December 31, 2017. Among these changes are increases in the gross receipts threshold for small taxpayer exceptions which expand the taxpayers that are eligible for these simplified accounting methods. If your average gross receipts for the past 3 years are $25 million or less, you should be taking a closer look at the small taxpayer safe harbors to see if they would provide a benefit for your business.

The four small taxpayer safe harbors provided under the TCJA are the following:

Taxpayer Safe Harbors

These safe harbors apply to all qualifying small taxpayers regardless of how the taxpayers are organized (e.g. partnership, corporation, sole proprietorship) or the taxpayers’ business activities. As long as the taxpayers’ average gross receipts for 2015, 2016 and 2017 do not exceed the $25 million threshold, they are eligible to use the above simplified methods in 2018. Taxpayers are allowed to use some or all of these safe harbors, so it is important to analyze which safe harbors are favorable to their business.

The IRS has indicated that the above changes constitute accounting method changes that have IRS filing obligations. Taxpayers looking to take advantage of these simplified accounting methods must file a shortened version of Form 3115, Application for Change in Accounting Method, with their 2018 tax returns.

Please contact your Eide Bailly professional or a member of our accounting methods team to learn more about the small taxpayer safe harbors and for assistance in filing Form 3115 and adopting these safe harbor methods.

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