LIFO-PRO annually publishes its list of the top 50 LIFO candidates to highlight the best opportunities that exist for companies to capture LIFO tax savings benefits in the upcoming year end. Although many industries are great LIFO candidates, the most logical approach for making a LIFO election includes close consideration to the timing in order to maximize the first year LIFO benefits that will be achieved. LIFO-PRO always recommends for companies to wait to elect LIFO in a year where the first year benefit will be as good or better than the historical annual averages. Our Top 50 LIFO Candidates list not only shows the types of inventories with sufficient historical inflation to provide meaningful LIFO tax savings, but also shows the types of goods with the best current year inflation. The list uses Table 9 Producer Price Index inflation categories to identify the top LIFO candidates, and the criteria to be eligible for consideration to be included on the list are as follows:
- 20-year historical average annual inflation rate greater than or equal to 1% – in order for the benefits to be large enough to merit the use of LIFO, the estimated historical average annual inflation for a company’s product mix should be at least 1% or greater
- Consistent inflation (11 or more of the past 20 years) – although a company may meet the 1% or greater threshold, consistent inflation is key in determining the level volatility that could be expected from using LIFO
- Year-to-date inflation is greater than or equal to historical average annual inflation rate – once the two above criteria are met, the remaining
Based on the criteria above being met, LIFO-PRO pools the PPI categories that meet the above criteria & select the top 50 using the following measurements:
- 3, 5, 10 & 20 Year historical average annual inflation rates – to make this list, there must be inflation in at least two out of the four 3/5/10/20 year historical averages
- Inflation frequency (the number of years that there was inflation out of the last 20 years) – to make the list, there must be inflation in at least 12 out of the 20 years
- Year to date & 12 months inflation rates – the PPI categories with the highest inflation rates for the 10 & 12 months ended 2018 & met all other criteria listed above were included on the list
Top 50 LIFO Candidates of 2018
| PPI Comm Code | PPI Category Description | 1Y May '19 | 1Y Dec '18 | 1Y Dec '17 | 1Y Dec '16 | 1Y Dec '15 | 1Y Dec '14 | 1Y Dec '13 | 1Y Dec '12 | 1Y Dec '11 | 1Y Dec '10 | 1Y Dec '09 | 1Y Dec '08 | 1Y Dec '07 | 1Y Dec '06 | 1Y Dec '05 | 1Y Dec '04 | 1Y Dec '03 | 1Y Dec '02 | 1Y Dec '01 | 1Y Dec '00 | 1Y Dec '99 | 3Y Avg. '18 | 5Y Avg. '18 | 10Y Avg. '18 | 20Y Avg. '18 | Years Inflat '99 - '18 | Infl Freq. Rate |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 0262 | Soft drinks | 6.6% | 1.9% | 0.1% | 2.4% | 1.8% | 0.9% | 1.0% | 1.8% | 3.0% | 0.4% | 2.9% | 4.6% | 2.9% | 3.2% | 0.4% | 4.0% | 0.3% | 2.8% | 2.6% | 3.6% | 3.3% | 1.5% | 1.4% | 1.6% | 2.2% | 20 | 100% |
| 06 | CHEMICALS & ALLIED PRODUCTS | -0.5% | 1.1% | 7.2% | 2.5% | -4.8% | 0.0% | 0.5% | 0.8% | 7.2% | 7.3% | 2.7% | 2.5% | 9.0% | 3.9% | 8.4% | 12.4% | 5.2% | 5.5% | -3.0% | 2.8% | 3.3% | 3.5% | 1.1% | 2.4% | 3.6% | 17 | 84% |
| 061 | Industrial chemicals | -3.8% | -3.4% | 12.8% | 2.5% | -13.9% | -7.9% | -2.0% | -3.0% | 9.5% | 10.9% | 13.2% | -7.9% | 14.5% | 9.3% | 10.2% | 23.6% | 8.3% | 10.2% | -7.8% | 4.9% | 3.6% | 3.8% | -2.4% | 1.5% | 4.0% | 13 | 68% |
| 062 | Paints & allied products | 3.9% | 5.2% | 2.6% | 0.4% | -4.4% | 0.2% | -1.4% | 6.6% | 8.9% | 2.5% | -0.3% | 9.7% | 4.4% | 5.2% | 6.7% | 5.9% | 2.1% | 6.6% | 1.3% | 3.1% | 0.5% | 2.7% | 0.8% | 2.0% | 3.2% | 17 | 84% |
| 065 | Agricultural chemicals & chemical products | 2.1% | 10.6% | 3.0% | -11.9% | -3.3% | 3.8% | -9.3% | -2.8% | 17.5% | 18.1% | -33.7% | 38.0% | 29.3% | -3.3% | 8.6% | 8.0% | 8.9% | 5.1% | -7.2% | 5.9% | -2.9% | 0.1% | 0.1% | -2.0% | 3.0% | 12 | 58% |
| 067 | Other chemicals & allied products | 1.3% | 2.3% | 1.5% | 1.3% | 0.4% | 1.3% | 1.1% | 1.7% | 5.3% | 1.4% | -2.5% | 8.1% | 3.6% | 3.1% | 6.5% | 2.5% | 1.4% | 0.5% | 0.6% | 1.9% | 0.7% | 1.7% | 1.3% | 1.3% | 2.1% | 19 | 95% |
| 07 | RUBBER & PLASTIC PRODUCTS | 0.8% | 3.1% | 3.1% | 0.3% | -2.6% | 0.4% | 1.7% | 0.8% | 6.7% | 4.1% | -2.4% | 8.3% | 1.8% | 1.3% | 10.5% | 5.4% | 3.0% | 0.3% | 0.4% | 2.1% | 1.1% | 2.2% | 0.8% | 1.5% | 2.4% | 18 | 89% |
| 071 | Rubber & rubber products | 1.5% | 2.8% | 0.9% | 1.1% | -3.2% | -2.3% | -2.0% | -1.1% | 11.5% | 6.7% | -2.8% | 13.3% | 2.9% | 3.9% | 6.1% | 5.1% | 1.9% | 0.5% | 0.3% | 1.6% | -0.4% | 1.6% | -0.2% | 1.1% | 2.3% | 14 | 68% |
| 072 | Plastic products | 0.6% | 3.3% | 3.8% | 0.0% | -2.5% | 1.3% | 2.9% | 1.4% | 5.1% | 3.3% | -2.2% | 6.7% | 1.6% | 0.4% | 12.1% | 5.5% | 3.3% | 0.2% | 0.4% | 2.2% | 1.7% | 2.4% | 1.2% | 1.6% | 2.5% | 17 | 84% |
| 08 | LUMBER & WOOD PRODUCTS | -3.9% | 1.1% | 4.9% | 2.0% | -2.1% | 3.2% | 5.4% | 5.8% | 1.8% | 3.5% | -1.4% | -1.0% | -0.1% | -3.0% | 1.2% | 4.9% | 7.1% | 0.9% | -1.3% | -5.4% | 3.6% | 2.7% | 1.8% | 2.4% | 1.5% | 13 | 63% |
| 082 | Millwork | 1.9% | 4.3% | 3.8% | 1.8% | 1.2% | 3.2% | 3.5% | 4.8% | 1.2% | 1.6% | -0.9% | 2.4% | 0.2% | 0.6% | 1.8% | 6.7% | 2.3% | 0.2% | 1.7% | 0.4% | 2.3% | 3.3% | 2.8% | 2.4% | 2.1% | 19 | 95% |
| 086 | Prefabricated wood buildings & components | 2.2% | 4.4% | 3.9% | 1.9% | 1.9% | 1.6% | 3.0% | 4.7% | 1.6% | -0.7% | -2.4% | 0.0% | 2.8% | 1.3% | 4.9% | 5.9% | 4.4% | 3.2% | 2.5% | 2.4% | 4.2% | 3.4% | 2.7% | 2.0% | 2.6% | 17 | 84% |
| 09 | Pulp, paper & allied products | 0.4% | 2.5% | 2.4% | 1.0% | -1.1% | -0.1% | 1.7% | 1.0% | 0.6% | 7.8% | -1.3% | 3.4% | 3.8% | 4.0% | 2.5% | 4.3% | 1.8% | 2.0% | -0.3% | 3.7% | 4.5% | 2.0% | 1.0% | 1.4% | 2.2% | 16 | 79% |
| 10 | METALS & METAL PRODUCTS | -1.0% | 7.3% | 5.6% | 6.0% | -11.3% | -0.5% | -1.8% | -2.3% | 3.6% | 9.7% | 3.8% | -2.8% | 4.0% | 12.1% | 5.1% | 19.4% | 4.4% | 3.0% | -2.8% | -0.2% | 2.5% | 6.3% | 1.2% | 1.8% | 3.0% | 13 | 63% |
| 101 | Iron & steel | -4.8% | 15.2% | 8.3% | 14.6% | -23.5% | -3.8% | 0.6% | -8.3% | 10.2% | 18.0% | 0.1% | -3.8% | 6.3% | 8.8% | -3.0% | 40.0% | 9.1% | 9.9% | -5.6% | -3.4% | 1.8% | 12.7% | 1.0% | 2.4% | 3.8% | 13 | 63% |
| 1017 | Steel mill products | 0.2% | 18.2% | 7.7% | 9.3% | -19.6% | 0.8% | -1.1% | -7.2% | 11.4% | 13.8% | -11.3% | 5.2% | 1.0% | 11.4% | -3.3% | 48.2% | 2.4% | 10.8% | -7.3% | 0.6% | -3.2% | 11.6% | 2.4% | 1.5% | 3.6% | 13 | 63% |
| 103 | Metal containers | 4.2% | 6.5% | 4.9% | -2.0% | -1.7% | -0.3% | 0.5% | -0.4% | -5.2% | 4.4% | 3.4% | 10.7% | 5.5% | 1.5% | 4.1% | 9.9% | 1.0% | 2.0% | 0.3% | -0.4% | -2.0% | 3.1% | 1.4% | 0.9% | 2.1% | 13 | 63% |
| 104 | Hardware | 3.6% | 3.4% | 1.8% | 0.5% | 0.4% | 1.8% | 0.7% | 1.3% | 3.4% | 0.0% | -1.2% | 9.3% | 2.0% | 3.3% | 4.4% | 4.2% | 0.8% | 0.0% | 2.5% | 1.3% | 1.9% | 1.9% | 1.6% | 1.2% | 2.1% | 17 | 84% |
| 1042 | Hand & edge tools | 3.8% | 2.6% | 1.5% | 0.8% | 0.2% | 0.4% | 1.6% | 2.7% | 1.2% | -0.6% | 0.6% | 7.5% | 1.9% | 1.7% | 5.9% | 3.3% | 1.2% | -0.5% | 3.8% | 1.0% | 1.2% | 1.7% | 1.1% | 1.1% | 1.9% | 18 | 89% |
| 105 | Plumbing fixtures & fittings | 4.5% | 4.6% | 2.1% | 0.2% | 1.3% | 3.1% | 1.6% | 1.7% | 2.8% | 1.3% | 0.6% | 3.5% | 3.9% | 5.4% | 4.7% | 4.6% | 0.9% | 0.9% | 0.1% | 1.1% | 2.2% | 2.3% | 2.2% | 1.9% | 2.3% | 20 | 100% |
| 106 | Heating equipment | 6.1% | 5.3% | 1.9% | 1.5% | 2.1% | 1.7% | 1.2% | 3.2% | 3.7% | 1.6% | 0.6% | 10.5% | 3.2% | 6.1% | 3.8% | 5.8% | 3.7% | 0.4% | 0.9% | 1.4% | 0.5% | 2.9% | 2.5% | 2.3% | 2.9% | 20 | 100% |
| 1066 | Domestic water heaters | 8.1% | 8.4% | 2.0% | 5.8% | 1.9% | 1.7% | -0.5% | 5.3% | 1.2% | 6.2% | 0.6% | 23.5% | -0.7% | 12.6% | 12.0% | 13.9% | 10.4% | 1.3% | -2.4% | 1.2% | -1.0% | 5.3% | 3.9% | 3.2% | 5.0% | 16 | 79% |
| 107 | Fabricated structural metal products | 2.5% | 8.0% | 2.0% | 1.2% | -0.9% | 0.9% | 0.0% | 0.0% | 5.4% | 3.2% | -7.8% | 12.2% | 2.0% | 5.1% | 3.0% | 17.6% | 0.7% | 0.8% | -0.4% | 0.3% | 0.9% | 3.7% | 2.2% | 1.1% | 2.6% | 17 | 84% |
| 1079 | Prefabricated metal buildings | 0.9% | 11.7% | 3.1% | 3.0% | -1.2% | 4.4% | 4.3% | -2.4% | 11.6% | 8.4% | -14.9% | 25.2% | 1.2% | 5.4% | 4.2% | 33.7% | -0.7% | 4.0% | 0.0% | 2.2% | 0.9% | 5.8% | 4.1% | 2.5% | 4.8% | 15 | 74% |
| 108 | Miscellaneous metal products | 4.1% | 5.0% | 1.3% | -0.4% | -1.6% | 0.4% | 0.7% | 0.4% | 3.3% | 1.1% | -1.2% | 7.6% | 3.1% | 3.4% | 2.5% | 6.5% | 0.2% | 0.4% | 0.5% | 0.2% | 0.0% | 1.9% | 0.9% | 0.9% | 1.6% | 16 | 79% |
| 1081 | Bolts, nuts, screws, rivets & washers | 7.1% | 4.5% | 0.3% | 0.7% | 0.8% | 0.9% | 1.1% | 0.0% | 3.5% | 1.9% | -4.2% | 5.9% | 5.3% | 5.6% | 12.1% | 8.2% | -0.3% | 0.2% | -0.1% | 0.2% | -0.6% | 1.8% | 1.4% | 0.9% | 2.2% | 15 | 74% |
| 1088 | Fabricated ferrous wire products | 8.8% | 16.3% | 1.2% | -1.7% | -0.8% | 1.3% | 1.1% | 0.3% | 6.7% | 1.7% | -3.4% | 23.0% | 3.4% | 4.0% | 0.8% | 17.3% | 2.7% | -0.1% | -0.2% | 0.1% | -0.3% | 5.0% | 3.1% | 2.1% | 3.5% | 14 | 68% |
| 113 | Metalworking machinery & equipment | 2.4% | 2.9% | 1.3% | 0.3% | 1.1% | 1.1% | 1.3% | 1.6% | 3.6% | 1.0% | -1.2% | 4.2% | 1.5% | 2.1% | 3.0% | 2.8% | 0.2% | -0.2% | 0.3% | 1.1% | 0.5% | 1.5% | 1.3% | 1.3% | 1.4% | 18 | 89% |
| 114 | General purpose machinery & equipment | 3.7% | 4.2% | 2.0% | 0.9% | 1.1% | 2.0% | 1.9% | 2.4% | 4.3% | 1.6% | 0.1% | 6.7% | 4.0% | 4.9% | 4.6% | 4.7% | 0.7% | 1.0% | 1.2% | 1.0% | 1.0% | 2.4% | 2.0% | 2.0% | 2.5% | 20 | 100% |
| 1141 | Pumps, compressors & equipment | 3.4% | 4.4% | 2.5% | 0.8% | 1.3% | 2.8% | 2.9% | 1.8% | 4.5% | 1.3% | 0.7% | 7.0% | 4.2% | 4.1% | 6.5% | 4.6% | 1.0% | 2.0% | 2.5% | 1.8% | 1.7% | 2.6% | 2.4% | 2.3% | 2.9% | 20 | 100% |
| 1143 | Fluid power equipment | 4.3% | 3.0% | 1.8% | 1.5% | 1.1% | 1.1% | 1.1% | 2.6% | 4.1% | 2.4% | 2.3% | 6.8% | 3.8% | 5.4% | 4.2% | 5.4% | 1.8% | 0.7% | 1.4% | 1.0% | 2.0% | 2.1% | 1.7% | 2.1% | 2.7% | 20 | 100% |
| 1144 | Industrial material handling equipment | 3.3% | 4.5% | 1.7% | 1.0% | 2.2% | 2.4% | 1.6% | 3.7% | 2.6% | 0.9% | -0.4% | 12.0% | 3.0% | 3.7% | 4.4% | 6.1% | 0.5% | 0.1% | 1.4% | 1.7% | 1.1% | 2.4% | 2.4% | 2.0% | 2.7% | 19 | 95% |
| 1147 | Air purification equipment & industrial & commercial fans & blowers | 3.9% | 4.6% | 0.9% | 0.5% | 1.7% | 3.7% | 0.8% | 2.0% | 4.1% | 1.2% | -2.4% | 6.1% | 2.8% | 2.5% | 5.8% | 5.6% | 1.3% | 1.1% | 0.9% | 2.0% | 0.5% | 2.0% | 2.3% | 1.7% | 2.3% | 19 | 95% |
| 1148 | Air conditioning & refrigeration equip | 3.9% | 5.2% | 2.0% | 1.2% | 0.6% | 1.5% | 1.3% | 1.7% | 3.3% | 1.3% | -1.5% | 4.1% | 3.7% | 4.5% | 3.5% | 3.3% | 0.2% | 0.7% | 0.8% | -0.7% | -0.1% | 2.8% | 2.1% | 1.6% | 1.8% | 17 | 84% |
| 1149 | Miscellaneous general purpose equipment | 3.9% | 3.7% | 2.1% | 0.7% | 0.5% | 1.9% | 2.6% | 2.5% | 5.8% | 1.9% | 1.2% | 6.2% | 5.1% | 6.6% | 4.8% | 4.7% | 0.5% | 1.4% | 0.7% | 1.4% | 1.2% | 2.2% | 1.8% | 2.3% | 2.8% | 20 | 100% |
| 116 | Special industry machinery & equipment | 2.2% | 2.1% | 1.0% | 1.1% | 0.7% | 1.9% | 0.5% | 0.9% | 1.3% | 0.1% | -0.4% | 3.5% | 1.7% | 2.8% | 2.5% | 2.1% | 1.4% | 0.5% | 0.8% | 1.0% | 1.1% | 1.4% | 1.4% | 0.9% | 1.3% | 19 | 95% |
| 119 | Miscellaneous machinery | 2.6% | 2.7% | -0.1% | -0.6% | 0.3% | 0.9% | 0.5% | 1.0% | 2.7% | -0.5% | 2.1% | 7.2% | 2.8% | 3.6% | 3.2% | 2.7% | 1.0% | 0.7% | 0.7% | 1.4% | 0.8% | 0.7% | 0.6% | 0.9% | 1.6% | 17 | 84% |
| 1195 | Other machine shop products | 2.8% | 4.0% | 0.1% | 0.3% | 0.4% | 0.3% | 0.1% | 1.3% | 3.1% | 0.0% | 2.6% | 5.4% | 2.9% | 3.8% | 3.4% | 3.8% | 0.7% | -0.2% | 0.8% | 1.8% | 0.3% | 1.5% | 1.0% | 1.2% | 1.7% | 18 | 89% |
| 12 | FURNITURE & HOUSEHOLD DURABLES | 2.8% | 3.9% | 1.6% | 0.1% | 0.7% | 1.5% | 0.7% | 1.2% | 3.0% | 0.3% | 0.6% | 4.8% | 1.4% | 1.0% | 3.5% | 2.5% | 0.5% | 0.2% | -0.2% | 0.8% | 0.5% | 1.8% | 1.5% | 1.3% | 1.4% | 19 | 95% |
| 121 | Household furniture | 1.9% | 2.6% | 3.0% | 0.6% | 1.3% | 1.2% | 0.9% | 2.0% | 2.8% | 1.2% | 0.0% | 6.3% | 1.2% | 0.8% | 5.2% | 3.3% | 0.4% | 1.3% | 1.2% | 1.6% | 1.3% | 2.1% | 1.8% | 1.6% | 1.9% | 19 | 95% |
| 122 | Commercial furniture | 4.1% | 5.9% | 1.4% | 0.8% | 0.6% | 2.9% | 1.4% | 0.0% | 4.2% | -0.8% | 1.0% | 6.3% | 2.3% | 2.3% | 3.7% | 3.5% | 1.5% | 0.2% | 1.0% | 1.0% | 1.3% | 2.7% | 2.3% | 1.7% | 2.0% | 18 | 89% |
| 123 | Floor coverings | 1.7% | 4.6% | 1.8% | -0.8% | 1.7% | 1.5% | 2.3% | -1.1% | 4.4% | 0.6% | 4.0% | 3.3% | 1.9% | 2.0% | 6.7% | 8.3% | 1.9% | 0.6% | -3.0% | 3.2% | 0.2% | 1.8% | 1.8% | 1.9% | 2.2% | 17 | 84% |
| 126 | Other household durable goods | 1.4% | 1.9% | 0.7% | 0.8% | 1.3% | 1.2% | 0.3% | 1.4% | 1.9% | 0.4% | 1.2% | 3.7% | 1.3% | 2.4% | 1.6% | 1.5% | 0.3% | 0.6% | 0.5% | 2.0% | 1.1% | 1.1% | 1.2% | 1.1% | 1.3% | 20 | 100% |
| 139 | Other nonmetallic minerals | 2.2% | 4.6% | 0.2% | -0.7% | -1.6% | 2.8% | 2.7% | 3.6% | 5.9% | 3.7% | -2.9% | 14.3% | 1.0% | 11.2% | 6.7% | 4.4% | 2.1% | 0.8% | 1.3% | 3.8% | 2.9% | 1.3% | 1.0% | 1.8% | 3.3% | 17 | 84% |
| 1392 | Insulation materials | -0.8% | 5.5% | 0.6% | 1.4% | 2.2% | 1.6% | 8.2% | 5.1% | 5.6% | 5.9% | -2.3% | 0.7% | -5.4% | 4.5% | 2.8% | 8.4% | 2.0% | -1.2% | 0.0% | -4.0% | 7.1% | 2.5% | 2.3% | 3.3% | 2.4% | 15 | 74% |
| 1394 | Paving mixtures & blocks | 5.0% | 10.2% | -0.2% | -5.8% | -6.6% | 2.6% | 1.1% | 4.4% | 8.2% | 4.6% | -8.6% | 33.6% | 1.9% | 27.3% | 14.2% | 4.1% | 3.6% | 2.3% | 0.5% | 15.0% | 3.9% | 1.2% | -0.2% | 0.8% | 5.4% | 16 | 79% |
| 1398 | Gaskets, packing & sealing devices | 1.2% | 2.1% | 0.9% | 0.8% | 0.8% | 0.8% | 1.3% | 2.1% | 5.7% | 2.4% | -0.2% | 4.1% | 2.6% | 2.2% | 1.4% | 4.2% | 0.5% | 0.6% | 2.5% | 2.8% | 0.8% | 1.3% | 1.1% | 1.7% | 1.9% | 19 | 95% |
| 1416 | Travel trailers & campers | 1.9% | 3.5% | 4.6% | 0.6% | 2.8% | 3.1% | 2.6% | 2.5% | 4.0% | -0.8% | 0.6% | 4.9% | 1.9% | 4.2% | 3.6% | 3.0% | 2.5% | 2.1% | 0.9% | 1.2% | 1.1% | 2.9% | 2.9% | 2.3% | 2.4% | 19 | 95% |
| 149 | Transportation equipment, n.e.c. | 2.1% | 3.2% | 2.3% | 2.1% | 0.9% | -0.3% | -0.4% | 1.7% | 1.2% | 0.9% | -0.1% | 0.1% | 2.0% | 3.4% | 2.5% | 2.3% | 1.5% | -0.2% | 1.4% | 2.7% | 1.5% | 2.5% | 1.6% | 1.1% | 1.4% | 16 | 79% |
| 157 | Other industrial safety equipment | 5.9% | 8.3% | -6.7% | 1.5% | 1.9% | 1.6% | 3.0% | 3.2% | 0.1% | 0.6% | 1.7% | 3.1% | 0.9% | 2.8% | 1.1% | 0.3% | 1.9% | 2.8% | 3.0% | 1.9% | 1.6% | 0.8% | 1.2% | 1.5% | 1.7% | 19 | 95% |
Companies with inventories that have a predominance of the items on this list should strongly consider making a LIFO election this year. If your company or client has been waiting for the right time to elect LIFO & has a predominance of inventories on this list, then this upcoming year end is the time. If LIFO is being considered for the first time, it’s not too late to make an election this year, so we’d recommend submitting a request for a complimentary LIFO Election Benefit Analysis to find out the potential tax benefits.
Would LIFO Benefit my Company?
LIFO-PRO recommends using the following two-step approach to determine the potential benefits of LIFO for your company:
- Preliminary analysis – Use the tables shown above and/or the additional resources on our Good LIFO Candidates page to determine if your company’s primary business activity or products carried have been historically inflationary or not.
- Full analysis – Obtain a complimentary LIFO Election Benefit Analysis from LIFO-PRO if the historical averages suggest that your company may have inventory with historical inflation trends or if you’re unable to make a clear determination. Get an accurate and thorough report quickly while saving time! Analysis includes a final recommendation regarding if LIFO should be used or not.
Get Your Complimentary LIFO Election Benefit Analysis Today!
Companies and CPA firms can determine if LIFO makes sense for them or not at no cost or obligation by requesting a LIFO election Benefit Analysis from LIFO-PRO. Learn more by clicking the link below:
Quick Analysis LIFO Tax Savings Formula
Use the following formulas to calculate the estimated LIFO tax savings that a company could achieve from using the LIFO method:
- Current year taxable income reduction = estimated y/e inventory balance * estimated c/y inflation
- Current year income tax reduction = current year taxable income reduction * tax rate
Example: To illustrate the use of the Quick Analysis LIFO Tax Savings Formula, assume the following:
Estimated year end inventory balance: $15,000,000
Estimated current year inflation: 2%
Tax rate: 30%
Current year taxable income reduction: $15,000,000 * 2% = $300,000
Current year income tax reduction: $300,000 * 30% = $90,000
A long-term LIFO benefit analysis could be achieved by using the same formula shown above and multiplying the results by the desired number of years that you’re wishing to project (i.e. 3/5/10/20 year).
Inflation Measurement Options
Some companies will use their internal inventory costs in order to estimate the historical inflation rates that exist within their inventories and determine if LIFO would be beneficial or not. While this may seem to be the most practical approach, the limitations of accounting systems coupled with the complications of deriving sufficient data to make such estimates often lead companies and their CPA firms to use externally calculated inflation indexes to more easily obtain an idea of the benefits of LIFO. Examples of external inflation measurement sources include Consumer Price Indexes (CPI) and Producer Price Indexes (PPI) that are published by the Bureau of Labor Statistics (BLS). Furthermore, the IRS allows businesses to use externally calculated inflation measurement sources for use in completing LIFO calculations; this practice has become commonplace for the following reasons:
- Easier to plug in externally calculated inflation indexes
- Better inflation rates than if they were internally calculated
- Less volatility in external indexes since sample data will often reduce dramatic swings in annual price changes
Learn more about the advantages of externally-calculated inflation indexes at LIFO-PRO’s IPIC LIFO Advantages page.
Related Resources & Links
PPI Inflation History IPIC LIFO Advantages PPI Table 9 PPI Table 11<