Substantial Inherited Business: Expert Planning ($2M–$10M Revenue)

A business at this scale needs a CPA who specializes in closely-held companies. Issues include complex cost allocations, employee benefits, and potentially sophisticated valuations.

Accrual method accounting is standard. Most businesses at this level use accrual accounting, recognizing revenue when earned and expenses when incurred. If the business has inventory, UNICAP rules under Section 263A may require capitalizing certain indirect costs into inventory value rather than deducting them immediately.

Depreciation schedules are likely complex. Businesses at this revenue level typically have significant fixed assets. The prior owner may have used Section 179 expensing, bonus depreciation, or MACRS schedules. Your CPA needs to reconstruct the depreciation history to calculate your stepped-up basis correctly under Section 1014.

Multiple state filings are common. Businesses generating $2M-$10M often operate across state lines, creating nexus obligations for income tax, sales tax, or both. Missing a state filing obligation can trigger penalties and back taxes.

The tradeoff: The business has enough substance to be valuable, but that same substance means higher audit risk. The IRS examines mid-market businesses more frequently than sole proprietorships, particularly for employment tax compliance.