With overall inflation around 3% for 2024 and prices on the rise for 2025, now is a good time to consider a Last-In-First-Out (LIFO) election if you carry inventory. Even if you are already on LIFO, analyzing the IPIC LIFO method for 2024 could be a great opportunity. IPIC LIFO uses indexes published by the Bureau of Labor Statics to measure inflation on your inventory, which means businesses of all sizes could experience tax savings using LIFO.
Whether you are a manufacturer, distributor, or retailer, you can mitigate the negative impact of price increases and annually save money by using the LIFO inventory method. Adopting LIFO removes the phantom profits caused by inflation, lowering your tax liability and creating cash for reinvestment in your business. Any business with over $3m in inventory that is experiencing inflation is a qualified candidate for electing LIFO. Depending on the inflation rate and the inventory level, the cash savings can be quite substantial.
Tax Benefit Projections
*Estimated After-Tax Cash Savings assumes a total Tax Rate of 35%. Estimated Inventory level is as of year beginning.
Who is Taking Advantage of LIFO for the First Time This Year?
Even modest inflation of 3.5% for 2024 for an aerospace and aviation parts manufacturing company with $25m in inventory resulted in $295,000 in cash savings for the taxpayer.
A wholesaler of electronic equipment and wiring with a $45m inventory and almost 6% inflation is deferring $1 million in tax. This increased cash flow is crucial to them as they reinvest in their business, particularly as their prices are continuing to rise.
A small coffee manufacturer, taking advantage of 15% inflation in 2024 reduced their tax bill by over $150,000.
An analysis of LIFO benefits is seamless and is provided at no cost to you. Just send a copy of the year beginning and year ending inventory files, including unit costs, and we’ll provide a free estimate of benefit and a fixed fee quote for the project.
