Managers can avoid the negative tax ramifications of LIFO liquidation by purchasing enough inventory by year-end to bring inventory up to beginning-of-year levels.

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By purchasing enough inventory to bring inventory levels up to beginning-of-year levels, managers can avoid the negative tax implications of LIFO liquidation which occurs when a company has less inventory at the end of the year than at the beginning. LIFO liquidation can result in higher taxable income and therefore a higher tax liability. Maintaining consistent inventory levels can mitigate this risk.

Managers Can Avoid the Negative Tax Ramifications of LIFO Liquidation