posted on December 30, 2000 08:32:19 AM new
I met with the family accountant yesterday and it went GREAT. Of course, hearing that I'll probably end up paying 44% of my profit in combined Federal/self-employment tax wasn't fun, but the accountant also recommended some deductions I hadn't considered. I think it will work out.
Anyway, he wants a figure for inventory I'll carry over into 2001. My question: does inventory include merchandise that sold but for which I am awaiting payment?
posted on December 30, 2000 09:20:23 AM new
I wouldn't think so if that amount was put on this years taxes. Inventory in my mind is what you have in your house to sell after Dec. 31, and what you bought during 2000. The IRS has an 800 number, give them a call and ask them. I think everyone does it different and what I have on my shelves that has been sold during 2000 and not sent yet is not inventory it now belongs to someone else. But this is my opinion and I hope it is right.
posted on December 30, 2000 09:54:28 AM new
Inventory is every thing that is left Unsold most use the shut off piont 11.59 12/31 .
even if you are waiting for payment it is sold this is the easiest lest Confuseing way.
Also Inventory is not just Items you sell this is just part of the job Inventory is every left you bought to do business with from pens to ink cartages boxes paper clips everything.
There is two sides to this the more inventory you have the harder your task but the better your deduction.
If you are trying hard to show profit in a business after 4 year you must show a profit or IRS puts you back in to Hobby class you would want the least amount of inventory laying around to count this would mean more profit you show.
This is why no matter what you buy for your business even less then a dollar get a receipt. Money is not concidered spent untill what you bought is used.
posted on December 30, 2000 09:57:31 AM newMy question: does inventory include merchandise that sold but for which I am awaiting payment?
You will never have a problem with the IRS if inventory means "anything here", regardless of anything else. Not paid for yet, paid for but not shipped, returned but not refunded, whatever, if it's here it's in inventory.
It doesn't take a rocket scientist to see that inventory is a way to move income from one year to another. If that's your goal, you may need advice from a professional, but if your goal is to just "make it through the year", the simple definition works fine.
posted on December 30, 2000 10:44:39 AM neweven if you are waiting for payment it is sold this is the easiest lest Confuseing way.
The problem with this way is that it's at odds with a simple cash-in accounting of income. You cannot remove something from inventory as "sold" unless you simultaneously create some item showing the income which hasn't arrived yet.
posted on December 30, 2000 11:19:43 AM new
These threads are always so stimulating, don't you think? Reminds me of Windows, there's always more than one answer to any question.
It didn't occur to me to count my supply of mailing envelopes as inventory. That, and tape, is about all I actually buy for office supplies.
I kind of like sg52's approach. I won't be accounting for these books as income until 2001, so I guess they are still expenses for 2000. I'll see if I get any PayPal payments for any of them by the end of 12/31, then add up the value of the remainder.
posted on December 30, 2000 11:58:15 AM new
I haven't found my book yet, so I'm not 100% sure, but here is what I THINK you need to do.
If you've expensed things like postage (stamps), mailing supplies (like boxes or bubble mailers), etc, at the end of the year anything remaining should be deferred as a Prepaid Expense and carried over as an asset into the new fiscal year.
With Inventory, if you're going to use the "if its here, its inventory", then you should defer the revenue associated with the sale (the fees to Ebay should be able to be left alone, because those fees are charged to you at the time the sale closes).
I know things like that don't make a lot of sense, but here is example of something else strange that I know we do. At the end of the year, when we go through the audit and they are preparing our audited financial statements, any outgoing checks we have still in our possession are added back into the final numbers (so its like we never made those payments).
posted on December 30, 2000 12:04:30 PM new
Inventory, in the sense we are discussing, does NOT include office supplies, stamps, etc. "Inventory" is the collection of items you have to sell.
From West's Federal Taxation(1999): "Inventory include all finished goods; goods in process; and raw materials and supplies that will become part of the finished product. . . . all items included in inventory should be valued at either (1) cost or (2) the lower of cost or market value."
posted on December 30, 2000 12:17:17 PM new
First, lets assume you are using cash basis accounting and not accrual accounting (if you don't know what accrual accounting is, you are not using it).
Your taxable year is probably the calendar year unless you have established a different fiscal year.
That said, inventory on hand at the end of the year includes exactly that, things you have. The fact that you have a sales contract for which you have not received payment yet does not change the fact that inventory is still on hand.
Likewise your gross income counts only when you receive the payment.
Also, you of course do not pay income tax on the actual shipping costs which you collect as part of the deal.
If you have not done so, you also need to get a resellers permit in your state and collect sales tax for your in-state shipments.
posted on December 30, 2000 12:18:55 PM new
Shipping supplies (boxes, tape, etc.) are part of cost of good sold and can either be written off as purchased or considered part of inventory.
posted on December 30, 2000 12:55:28 PM new
Yup Even the big company I work for when they take End of the year inventory it includs not only the materals to produce the goods they make but all inventory in boxes packing tape pallets to ship on all boxes glue for the boxes the get glued makers labels paint ink all shrink wrap any materials used to make and ship basically every thing left at machines and in the wear house includeing unshipping finished good and the cost of the packageing its in.
Then they doa physics machinery inventory all the equipment it took to produce the inventory from tape machine to the last screw and hose in stock in the parts room and offices then a inventory of the offices and office supply.
but the packaging is added in to inventory on hand to ship the Items.
for end of the year they not only take a count but take pictures of the inventory counted.
posted on December 30, 2000 03:00:40 PM new
If Inventory is going to be carried over into next year, you MUST use the accrual method of accounting. If you are using cash, 100% of inventory is expensed at the time of purchase.
From the instructons of Schedule C, Line F "If inventories are required, you must use the accrual method for sales and purchases of inventory."
Inventory in the sense we are talking about it is the items you are selling. You can also have inventories of office supplies and mailing supplies, which you expense at the time you USE it, and not when you PURCHASE. This is usually more detail than desired, though. Read the instructions for Line 22 for the Schedule C for information.
posted on December 30, 2000 03:43:12 PM new
Apparently there is a hybrid method allowed in which inventory is accounted via accrual method but the cash method is used to record all income and expenses?
posted on December 30, 2000 03:56:11 PM new
HI John -
I found it hard to figure out how to manage recordkeeping for shipping over this past year. For a while I basically made it "invisible" in my records by not recording it as income or expense when I paid the PO.
But then I decided this was not going to work because I generally add on some "handling" to actual shipping cost I quote. Or, what I pay the PO may for whatever reason not be exactly what I am paid [for example when I ship a heavy book for half.com and don't get enough reimbursement].
So I started to instead record as income the whole payment made to me by my ebay buyers, as well as half.com and Amazon. Then I record as a cost what I actually pay in shipping. I hope that's "right enough" because I haven't come up with another workable approach.
I do have my licenses and sales tax collection set up, at least!
posted on December 30, 2000 06:15:39 PM new
Inventory for INCOME TAX purposes (Schedule C) is the merchandise left over at the end of 1999 as well as everything you bought this year minus the cost of everything you sold this year.
If you're in the auction business and are selling real things (as compared to services), you have to be on the accrual basis, which means that when a sale is completed (i.e. the auction ends on eBay), it counts. That means income from sales ending 12/31 counts, but you also get to deduct the cost of those items this year as well.
Taking inventory of all the other stuff (boxes, pens, etc.) is not for income tax purposes but probably for property tax purposes (at least it is here in Ohio). For that we have to account for every widget (or at least their value) and file this annoying form each April 30 (even though my business will never has anywhere near the $20,000 in inventory sitting around to exceed the exemption before taxes kick in). Another joy of being a professional...
posted on December 30, 2000 08:15:47 PM new
Speaking of inventory -- how do you keep track? So far, I've just been counting what's on the shelves at the end of the year. What a pain!
I was thinking of getting a notebook and simply writing down the items that I have acquired to sell, and their cost. Then, when the item sells, I make a tick-mark on that line and add the tick marks at the end of the year. I could even transfer this into a computer spreadsheet or db, but it seems that would be double entry and take too much time.
I haven't yet found a auction manager that is sophisticated enough to do this, yet simple enough for me to use.
Any other suggestions?
El
"The customer may not always be right, but she is always the customer."
