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Out With the Bad, In With the Good

Forget about LIFO's poor reputation--find out how the IRS is making it better for you.

This story appears in the December 2002 issue of Entrepreneur. Subscribe »

Here's some good news about inventory methods and their potential tax impact. The IRS issued new regulations that make the LIFO (last-in, first-out) method of accounting for inventory far more attractive than it used to be. In fact, says Brian Lucas, federal tax partner in the Chicago office of accounting firm Grant Thornton, "the IRS has cleared up a lot of the ambiguity with these new regulations."

As you know, LIFO and FIFO (first-in, first-out) are two inventory identification methods. FIFO assumes that sales are made from items that have been sitting in inventory the longest. LIFO assumes that the most recently purchased items are the first ones sold.

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