Business & farm

So a couple of things here (well maybe more than a couple):

• As noted in a previous response, small businesses (other than a tax shelter) that meet the $26 million (for 2019) gross receipts test under Code Section 448 can use the cash method even if, the taxpayer would otherwise be required to use the accrual method of accounting due to the presence of inventories.
• To satisfy this test, the average annual gross receipts of the taxpayer must be $26 million (for 2019) or less. The test is based on the three tax-year period before the testing year. The $26 million (for 2019) threshold is applied to each test year based on the average annual gross receipts for the three tax-year period ended immediately before the test year.  You clearly meet this test based on your facts.
• Taxpayers that qualify to use the cash method of accounting because of the $26 million (for 2019) gross receipts test are not subject to the Section 263A UNICAP requirements for any tax year starting after 2017. Instead, the cost of the merchandise is accounted for in the same manner as materials or supplies that are not incidental; that is, it must be accounted for on the cost basis of accounting.
• This provision (small taxpayer) requires cash method taxpayers to expense the cost of these items only as they are consumed or used in the taxpayer's business or, if later, when the taxpayer pays for the items. Thus, the taxpayer must capitalize these costs and deduct them by adjusting the balance via perpetual inventory records or taking physical inventory at year-end to determine the amount of year-end supplies and materials. 
• The ability to expense any and all "inventory" for a small taxpayer only applies to incidental materials and supplies.
• The above is a confusing area and relatively new.  The TCJA Committee Reports state that: “Consistent with present law, a deduction is generally permitted for the cost of nonincidental materials and supplies in the taxable year in which they are first used or are consumed in the taxpayer's operations.  Essentially the handling of nonincidental materials and supplies should be in accordance with Revenue Procedure 2002-28.  According to the rules in the revenue procedure, nonincidental materials and supplies are deductible in the year they are actually used or consumed in the taxpayer's business.
• Here is a simple example:  Sally Spaniel operates her veterinary practice through a calendar year corporation. In addition to providing small animal health services, Sally sells pet supplies from her clinic. For both business activities, she uses the cash method of accounting and accounts for inventoriable items (such as pet food) as nonincidental materials and supplies. In December 20X8, she bought and paid for pet food that was sold in 20X9, after her holiday break. Sally cannot deduct the cost of the pet food until 20X9 because that was the tax year the pet food was provided to her customers.
• Finally, you also need to keep in mind, that since you used your "old" method of accounting for more than one year, if you decide to change, you would need to complete and file a change in accounting method form 3115.
• Keep in mind, that this "new" method would most likely arrive at the same place; you just don't have to technically call it inventory.
• Also keep in mind, that changing methods isn't creating any new deduction, it's just timing and may cause swings in your income.

I would recommend that you consult with a tax professional where you can have a one on one and understand the rules so you can complete an accurate return and minimize your time completing the return.

Read this brief discussion and pay particular attention to the second half of the discussion regarding the footnote to the Joint Committee on Tax Report on this matter.

https://www.eisneramper.com/inventory-tax-blog-0919/