What are the tax implications of LIFO and FIFO?

Can you explain the tax implications of using LIFO versus FIFO for inventory?

Sure! LIFO (Last In, First Out) and FIFO (First In, First Out) are two inventory valuation methods that can affect your taxes.

How does LIFO impact my taxable income?

Using LIFO can lower your taxable income during periods of inflation, as it matches the most recent, higher costs against revenues.

What about FIFO? How does it affect taxes?

FIFO generally results in higher taxable income during inflation, as it matches older, lower costs against current revenues.

Are there any specific industries that prefer one method over the other?

Yes, industries with fluctuating prices, like retail or manufacturing, often choose LIFO to reduce tax liabilities, while others may prefer FIFO for simplicity.