New IRS Guidance on Changing Accounting Method for Retail Inventory

Accounting for merchandise inventory can be challenging and time-consuming, especially when a retailer carries an array of products. Physically counting each and every inventory piece could be daunting. To simplify the process, taxpayers may elect to use the retail inventory method, which allows for an approximation of a retailer’s ending inventory without necessarily taking a physical inventory count. In August, the IRS issued final regulations regarding certain changes to this method, followed by guidance explaining how to obtain automatic approval to make such accounting method changes.

More specifically, the Weaver newsletter article New IRS Guidance on Changing Accounting Method for Retail Inventory explains:

• What the retail inventory method is and how a retailer can calculate it
• What exactly has changed and when the changes go into effect
• How to obtain automatic IRS approval for changes within the retail inventory method 

The retail inventory method can be beneficial to many retailers, but it is only reliable if the retailer maintains accurate records of the full cost and retail value of merchandise for sale, merchandise purchased and the total number of sales for a fiscal period.

For more information on the retail inventory method or for the latest IRS updates regarding it, please contact a tax professional before year end.