Many American businesses and employers depend on the LIFO
accounting method.

What Is LIFO?

“Last in, first out” (LIFO) is a widely used inventory accounting method that helps businesses accurately keep track of their inventories while maintaining resilient supply chains and mitigating the damage of inflation.  For industries with rising prices, LIFO most closely matches the cost of goods sold with the increasing cost of replacement inventory that a company must purchase in order to remain in business, maximizing cash flow for businesses facing rising costs and tight profit margins.

In contrast, the “first in, first out” (FIFO) method of accounting most closely matches the cost of goods sold with the decreasing cost of replacement inventory in industries where costs are not rising.  In this way, LIFO and FIFO achieve the same purpose – they most closely match the cost of goods sold with the cost of replacement inventory the company must purchase in order to remain in business. 

LIFO is a popular method
of accounting

LIFO is used by 1/3 of US companies, including thousands of small and mid-sized manufacturers, retailers, wholesalers and distributors, to accurately manage inventory while maintaining liquidity to replenish inventory and fund payroll and operations.  This is especially important in times of inflation when costs are rising and putting stress on cash flow.

LIFO protects businesses & consumers from inflation

When prices are increasing, LIFO defers taxes arising from inflationary profits and helps businesses manage rising costs. LIFO only provides a benefit to businesses when there is inflation.

LIFO helps maintain
the supply chain

LIFO helps ensure that businesses have adequate cash flow to continue replenishing inventory to meet demand.

LIFO is not a loophole or a permanent tax giveaway

LIFO requires inventory to be replaced and has a built in “toggle switch” to prevent gaming that triggers tax when inventory is not replaced or when prices go down.

What Would LIFO Repeal Do?

Slow the Economy:

LIFO repeal would reduce GDP by

$11.6 billion

per year

Cost jobs:

cause the loss of as many as

50,300 jobs

Reduce Revenue:

reduce federal revenue by

$518 Million

annually

WHY IS LIFO IMPORTANT TO AMERICAN BUSINESS?

  • "The tax benefits allow us to remain in the market...In fact, without those savings, we would have to drop our employee 401(k) plan, slow our growth, and possibly even retract our employee count...None of which can be good for the company."

  • "LIFO is vital to the ongoing success and survival of our company…”

  • "LIFO allows me provide maximum benefits to my employees.”

  • “LIFO allows us the ability to reinvest funds into the business to help provide jobs to our associates.”

  • “I run a $120 million family owned supply business. As an example, last year we recorded $800,000 of an increase to our LIFO reserve. Without this we would have paid an additional $320,000 in taxes.”

  • “Many of the items in our inventory are slow moving and this causes the replacement cost to erode the profit we thought we made. The LIFO inventory method helps insulate us from that loss and allows us to be competitive and grow.”

  • “The LIFO reserve has allowed us to grow from $400,000 to $12,500,000 in sales over the past 33 years. It allowed us to increase our payroll from five to 52 employees, to sponsor a 401(k) program, pay for half of our employees’ health care, and keep 95% of them year round even though we are a very seasonal business.”