From what you described, it actually sounds like you've been handling inventory correctly. Even if you use the cash method, inventory is generally deducted through Cost of Goods Sold (COGS), meaning you deduct the cost of items when they are sold, not when they are purchased. So if you spent $1,000 on inventory but only deducted the cost of items sold that year, that is typically the correct treatment.
You don't automatically switch to the accrual method just because your business has grown. Most small businesses under the IRS gross receipts threshold are allowed to continue using the cash method while accounting for inventory properly.
If you later determine that your prior treatment was technically incorrect, you generally don't amend multiple prior years. Instead, you will file Form 3115 (Change in Accounting Method) and calculate a Section 481(a) adjustment.
At this point, you likely are not leaving money on the table, assuming your COGS was calculated properly each year.
A good plan would be:
- File 2025 consistently
- Meet with a CPA or EA early in 2026
- Have them review your inventory method and determine whether a formal accounting method change is needed.
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