LIFO
Can LIFO Still Provide Tax Savings in 2023?
While inflation is not at the high levels seen in the last couple of years, if you haven’t elected LIFO
Sara Richardson
December 15, 2023
LIFO stands for “Last-In, First-Out.” It’s an inventory cost flow assumption and identification method that assumes the most recently purchased items are sold first.
In order to use LIFO, a company must formally elect to do so through filing Form 970 – Application to Use LIFO Inventory Method. Should a company wish to make any changes to the accounting method, they must do so on Form 3115 – Application for Change in Accounting Method. The company is also required to use LIFO for financial reporting purposes, the “LIFO conformity requirement.”
LIFO can reduce income taxes during periods of inflation by increasing the cost of goods sold (COGS), leading to lower taxable income. It can also simplify record-keeping for certain industries.
Any company affected by inflation and with a substantial inventory may use LIFO. Manufacturers, retailers, and wholesalers all use LIFO. Various industries such as oil & gas, chemical, metal, lumber, hardware, grocery, and building supplies all use LIFO.
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While inflation is not at the high levels seen in the last couple of years, if you haven’t elected LIFO
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