Lesson: Removing LIFO Inventory Layers

In this lesson, tuck in with Nick Palazzolo, CPA, as he unpacks the complexities of inventory layers under the LIFO (Last-In, First-Out) accounting method. With a down-to-earth approach, Nick explains how LIFO can lead to the accumulation of lower-cost inventory layers from previous years, creating a potential 'bubble' that could distort a company's net income. He addresses the importance of intentionally removing these outdated layers to avoid abrupt spikes in net income and, consequently, in the tax bill. Moreover, Nick describes specific LIFO-related issues and introduces methods such as the specific goods pooled LIFO approach and dollar-value LIFO to mitigate layer liquidation concerns, ensuring that a clearer understanding of LIFO's implications is within reach.