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Accounting method planning may provide tax savings

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April 2020


In times of difficult economic conditions, companies may want to defer income and accelerate deductions to reduce cash taxes and improve cash flow.  Evaluating tax methods of accounting and making appropriate method changes or elections may help achieve these objectives for both domestic and foreign entities. 

The recently enacted CARES Act, allowing net operating losses (NOL) to be carried back for five tax years, creates options for additional accounting method planning to increase an NOL that is carried back to a higher rate tax year.  Taxpayers may be able to achieve tax savings by making method changes under the automatic procedures or by electing treatment on their federal income tax returns.

The takeaway

Taxpayers may be able to achieve significant tax savings and improve cash flow through changes in methods of accounting.  Taxpayers should evaluate their current accounting methods to determine what method changes may be beneficial.  Many of these changes may be made under the automatic procedures.  Taxpayers should consider all tax provisions and engage in careful modelling, however.

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Christine Turgeon

Partner, Federal Tax Services Leader, PwC US

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