Bob Richardson

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:

  1. 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
  2. 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
  3. 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:

  1. 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
  2. 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
  3. 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 CodePPI Category Description1Y May '191Y Dec '181Y Dec '171Y Dec '161Y Dec '151Y Dec '141Y Dec '131Y Dec '121Y Dec '111Y Dec '101Y Dec '091Y Dec '081Y Dec '071Y Dec '061Y Dec '051Y Dec '041Y Dec '031Y Dec '021Y Dec '011Y Dec '001Y Dec '993Y Avg. '185Y Avg. '1810Y Avg. '1820Y Avg. '18Years Inflat '99 - '18Infl Freq. Rate
0262Soft drinks6.6%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%20100%
06CHEMICALS & 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%1784%
061Industrial 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%1368%
062Paints & allied products3.9%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%1784%
065Agricultural chemicals & chemical products2.1%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%1258%
067Other chemicals & allied products1.3%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%1995%
07RUBBER & PLASTIC PRODUCTS0.8%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%1889%
071Rubber & rubber products1.5%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%1468%
072Plastic products0.6%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%1784%
08LUMBER & 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%1363%
086Prefabricated wood buildings & components2.2%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%1784%
09Pulp, paper & allied products0.4%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%1679%
10METALS & 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%1363%
101Iron & 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%1363%
1017Steel mill products0.2%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%1363%
103Metal containers4.2%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%1363%
1042Hand & edge tools3.8%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%1889%
105Plumbing fixtures & fittings4.5%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%20100%
106Heating equipment6.1%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%20100%
1066Domestic water heaters8.1%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%1679%
107Fabricated structural metal products2.5%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%1784%
1079Prefabricated metal buildings0.9%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%1574%
108Miscellaneous metal products4.1%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%1679%
1081Bolts, nuts, screws, rivets & washers7.1%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%1574%
1088Fabricated ferrous wire products8.8%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%1468%
113Metalworking machinery & equipment2.4%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%1889%
114General purpose machinery & equipment3.7%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%20100%
1141Pumps, compressors & equipment3.4%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%20100%
1143Fluid power equipment4.3%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%20100%
1144Industrial material handling equipment3.3%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%1995%
1147Air purification equipment & industrial & commercial fans & blowers3.9%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%1995%
1148Air conditioning & refrigeration equip3.9%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%1784%
1149Miscellaneous general purpose equipment3.9%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%20100%
116Special industry machinery & equipment2.2%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%1995%
119Miscellaneous machinery2.6%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%1784%
1195Other machine shop products2.8%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%1889%
12FURNITURE & HOUSEHOLD DURABLES2.8%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%1995%
121Household furniture1.9%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%1995%
122Commercial furniture4.1%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%1889%
123Floor coverings1.7%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%1784%
126Other household durable goods1.4%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%20100%
139Other nonmetallic minerals2.2%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%1784%
1392Insulation 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%1574%
1394Paving mixtures & blocks5.0%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%1679%
1398Gaskets, packing & sealing devices1.2%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%1995%
1416Travel trailers & campers1.9%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%1995%
149Transportation 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%1679%
157Other industrial safety equipment5.9%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%1995%

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:

  1. 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.
  2. 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:

[otw_shortcode_button href=”” size=”medium” icon_position=”left” shape=”radius” css_class=”nounderline”]LIFO Election Benefit Analysis[/otw_shortcode_button]

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).

[otw_shortcode_button href=”” size=”medium” icon_position=”left” shape=”radius” css_class=”nounderline”]LIFO Tax Savings Calculator[/otw_shortcode_button]

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:

  1. Easier to plug in externally calculated inflation indexes
  2. Better inflation rates than if they were internally calculated
  3. 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