2024 Top Five LIFO Tax Savings Tips & Tricks

Check out our comprehensive guide containing the top 2024 LIFO opportunities and strategies for all companies

Quickly find the most meaningful LIFO tax savings available this year for companies that aren’t on LIFO, but are ideal candidates, or download our complete list of 2024 top LIFO election candidates Excel file

2024 Top Tax Savings Tips & Tricks for Companies not on LIFO, but are ideal candidates

1. Create meaningful 2024 LIFO tax benefits by adopting LIFO for the 2024 year end

Above average inflation in 2024 has created numerous LIFO tax savings opportunities from electing LIFO this year. Quickly estimate your 2024 year end LIFO tax benefits using the following formula:

• 2024 taxable income reduction (aka LIFO expense) = current year inflation * prior year end inventory balance
• 2024 LIFO tax benefit = 2024 LIFO expense * combined federal + state tax rate

There are many industries with inflation at or above the historical levels & will be good LIFO election candidates for the 2024 year end. Opportunities include but are not limited to the following areas:

• Processed foods & beverages – 4% inflation
  • Meats, poultry & fish – 10% inflation
  • Dairy products – 5% inflation
  • Canned fruits & juices – 4% inflation
  • Frozen fruits, juices & ades – 19% inflation
  • Sugar & confectionery – 15% inflation
  • Refined sugar – 11% inflation
  • Confectionery materials – 49% inflation
  • Confectionery end products (candy & snacks) – 8% inflation
  • Beverages & beverage materials – 4% inflation
    • Soft drinks – 7% inflation
    • Packaged beverage materials (including coffee & tea) – 12% inflation
  • Paper & paper products – 3% inflation
    • Converted paper & paperboard products – 3% inflation
    • Publications, printed matter & printing material – 3% inflation
  • Machinery & equipment – 3% inflation
    • General purpose machinery & equipment – 3% inflation
    • Pumps, compressors & equipment – 5% inflation
    • Material handling equipment – 4% inflation
    • Fluid power equipment – 6% inflation
    • Motors & generators – 7% inflation
    • Switchgear, switchboard, industrial controls equipment – 7% inflation
    • Instruments (including environmental controls and process control instruments) – 4% inflation
  • Nonmetallic materials & products – 4% inflation
    • Concrete ingredients & related products – 7% inflation
    • Construction sand, gravel & crushed stone – 8% inflation
    • Insulation materials 8% inflation
  • Transportation equipment (including PPIs used by auto dealers)
    • Motor vehicles (including cars, crossovers, trucks, SUVs & minivans) – 2% inflation
    • Motor homes – 2% inflation
    • Aircraft & aircraft equipment (including parts) – 4% inflation
  • Miscellaneous products – 6% inflation
    • Sporting goods & athletic goods – 4% inflation
    • Small arms & ammunition – 3% inflation
    • Tobacco – 12% inflation
    • Personal & industrial safety equipment & clothing – 4% inflation

 Check out our 2024 Top LIFO Election Candidates Guide to view our proprietary list of industries that’ll provide the most meaningful tax benefits from adopting LIFO this year! Contact LIFOPro to learn more about obtaining a free LIFO election benefit analysis, or to schedule a LIFO discovery meeting/call today!

2. Maximize election year tax benefits by including inflationary goods & excluding deflationary goods from LIFO scope

Many believe that adopting LIFO is an all or none concept, but IRS Regs. allow taxpayers to choose the goods that will be included in the LIFO election scope. When deflation exists in a material portion of your inventory, it can significantly offset the LIFO tax benefits created from the inflationary goods. Accordingly, a great planning strategy to maximize LIFO tax benefits is to value the goods with inflation in the year of adoption, and exclude the ones that have deflation. The subsequent planning strategy would be to expand the LIFO election scope to include the goods not valued LIFO in the first period where there’s enough inflation to create a meaningful tax benefit.

Contact LIFOPro to receive a complimentary LIFO election benefit analysis that provides accurate comparative results between valuing 100% vs. selective portions of your goods!

2024 Top Tax Savings Tips & Tricks for Companies already on LIFO

3. Maximize 2024 LIFO tax benefits & eliminate IRS audit risk by changing to the IPIC method!

Have sizable income this year & seeking to minimize your tax bill on the 2024 return? Is your company facing 2024 LIFO recapture (taxable income increase) using their present LIFO methods? The overwhelming majority of LIFOPro’s clients use an external inflation index (aka IPIC method; using Bureau of Labor Statistics Consumer/Producer Price Indexes) because it provides materially higher tax benefits compared to using an internal inflation index.

The IPIC method is an IRS safe harbor method that can be changed to under automatic consent procedures, and it also provides audit protection from any prior LIFO calculation errors, meaning it is more defensible upon IRS audit compared to all non-IPIC methods. Since both GAAP & IRS regulations allow for the use of different financial reporting & tax LIFO methods, companies who’ve already issued their 2024 financial reports under their existing method can change to the IPIC method for tax purposes only on this year’s tax return. There’s still plenty of time to scope out a change to the IPIC method for the 2024 year end as the tax deadline for doing so is September/October 15^th for those filing extended return, and March/April 15^th for those filing without extending.

Contact LIFOPro to obtain a complimentary pro forma IPIC LIFO calculation to compare your 2024 LIFO tax benefits using an internal vs external index. Included in the pro forma IPIC analysis is a 20 year lookback to compare the IPIC method vs. present method LIFO tax benefits during that period & best practices feedback/recommendations on if and when a change to the IPIC method should be made!
Request Comparative Internal vs. External Index (IPIC) LIFO Calculation Analysis

4. Maximize 2024 LIFO tax benefits by expanding LIFO election scope to include inventories and/or subsidiaries currently valued using non-LIFO methods

Many companies are missing out on material LIFO tax benefits due to having a selective LIFO election scope where less than 100% of their goods are valued using LIFO (aka limited/selective LIFO election). The most common examples are valuing WIP, packaging, in-transit goods & certain business segments or entities/subsidiaries using non-LIFO methods. No IRS Form 3115 is required to expand the LIFO election scope, meaning there’s still plenty of time to make the change for the 2024 year end.

Contact LIFOPro to obtain a complimentary pro forma LIFO calculation to compare your 2024 LIFO tax benefits using their present vs. expanded election scope. Included in the pro forma scope expansion analysis is a 20 year lookback to compare the expanded vs. present scope LIFO tax benefits during that period & best practices feedback/recommendations on if and when a LIFO scope expansion should be made!
Request Comparative LIFO Calculation by Election Scope Analysis

5. Auto dealers – Maximize 2024 LIFO tax benefits, minimize administrative burden, expedite recording LIFO journal entry & issuing OEM financial statements by changing from the alternative LIFO method to the IPIC method

Many auto dealers have switched to the IPIC method because it created materially higher LIFO tax benefits than the alternative LIFO method. Furthermore, many auto dealers expanded their LIFO election scope to include used vehicles and/or parts because it provided a simple and reliable means of creating additional LIFO tax benefits on goods that were not eligible under the new vehicle alternative LIFO method. Best of all, since the only information required for auto dealers to use the IPIC method is a breakdown of inventory balances by type (cars, trucks/SUVs & parts), it also materially reduces administrative burden by eliminating the need to obtain vehicle purchase invoices for all goods on the lot at year end (which precludes the need to manually extract data such as vehicle model codes and base vehicle prices from each invoice into an Excel schedule). Furthermore, many auto dealers will select a November BLS appropriate month as their inflation measurement period, which allows LIFO calculations to be completed as soon as January 1^st for December year ends since November BLS indexes are released in mid-December!

The 2024 BLS PPI vehicle inflation was 2.2% this year, and the IPIC method LIFO tax benefits has been as good or better than the ALM with almost all of our dealer clients in 2024. Contact LIFOPro today to obtain a free pro forma IPIC method calculation & compare the ALM vs. IPIC method tax benefits for the 2024 year end! Additionally, receive an optional breakdown of the 2024 LIFO tax benefits amongst varying LIFO election scope levels, including new vehicles only vs. new vehicles & parts and all goods.

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