Guest guest Posted December 20, 2005 Report Share Posted December 20, 2005 At 06:06 PM 12/19/2005, you wrote: >Up until now I have been a web developer and I am getting ready for my first > " year end " where I actually have inventory!! I was wondering if anyone >knows if " inventory " means just the finished products I have ready to be >sold or if it also includes all of the ingredients I have sitting around >waiting to become products. I ask b/c that makes a huge difference. I am >loathe to try to find the answer from the less than friendly IRS site ... >so thought I'd ask here first if anyone knows off the top of their head. If >not, I'll go brave the IRS site. > >Thanks! according to my accountant, any items that you do not sell as such are " non inventory items " ... and that includes ingredients, packaging, etc. ie, if you both USE bottles AND sell empty bottles, the box of empties waiting to be filled are inventory, since you can sell them. If you do NOT sell empty bottles, but only bottles full of product... the empties do not count as inventory. That's my understanding...but I am NOT an accountant... TRUST ME, you wouldn't want me to be the authority! also, remember that " increases in inventory " count as income. That one used to confuse me. what's the difference btwn having cash on hand at the end of the year and taking advantage of this great bargain sale on ... whatever... in January. It still confuses me... but cash is better than increased inventory, from a taxable stand point. best yet are ways to make necessary NON inventory purchases in the next two weeks... furniture, a new computer, a printer... a HUGE office depot order...these are the sort of thing that can whittle down your taxes... Celebrating 10 years online. Supplying pure Essential Oils, Aromatherapy Accessories, Information and more! Visit us at: <http://www.naturesgift.com> Quote Link to comment Share on other sites More sharing options...
Guest guest Posted December 20, 2005 Report Share Posted December 20, 2005 actually, woobey queen was right ... you might want to have a chat with your accountant ... http://www.irs.gov/businesses/small/industries/article/0,,id=100355,00.html Inventory - Manufacturing Tax Tips An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. To figure taxable income, you must value your inventory at the beginning and end of each tax year. To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. The rules for valuing inventory cannot be the same for all kinds of businesses. The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Your inventory practices must be consistent from year to year. Items Generally Included in Inventory Include the following items when accounting for your inventory. 1.. Merchandise or stock in trade 2.. Raw materials 3.. Work in process 4.. Finished products 5.. Supplies that physically become a part of the item intended for sale Containers such as kegs, bottles, and cases, regardless of whether they are on hand or returnable, should be included in inventory if title has not passed to the buyer of the contents. If title has passed to the buyer, exclude the containers from inventory. Valuing Inventory The value of your inventory is a major factor in figuring your taxable income. The method you use to value the inventory is very important. Generally there are two methods for valuing inventory. These methods are cost or lower of cost or market. .... continued .... use link above ... Quote Link to comment Share on other sites More sharing options...
Guest guest Posted December 20, 2005 Report Share Posted December 20, 2005 On Behalf Of Marge Clark Monday, December 19, 2005 4:30 PM Re: inventory??? according to my accountant, any items that you do not sell as such are " non inventory items " ... and that includes ingredients, packaging, etc. ie, if you both USE bottles AND sell empty bottles, the box of empties waiting to be filled are inventory, since you can sell them. If you do NOT sell empty bottles, but only bottles full of product... the empties do not count as inventory. That's my understanding...but I am NOT an accountant... TRUST ME, you wouldn't want me to be the authority! also, remember that " increases in inventory " count as income. That one used to confuse me. what's the difference btwn having cash on hand at the end of the year and taking advantage of this great bargain sale on ... whatever... in January. It still confuses me... but cash is better than increased inventory, from a taxable stand point. best yet are ways to make necessary NON inventory purchases in the next two weeks... furniture, a new computer, a printer... a HUGE office depot order...these are the sort of thing that can whittle down your taxes... I think you might be just a little off track here, Marge. Bottles (even if you don't sell them, but they are a component part of a product you do sell) are considered unsold inventory. They are a purchased piece of your finished product, along with ingredients and any kind of closure, label, box, etc. You don't pay income tax on an item until you actually sell it, but you carry your year-end (unsold) inventory as " cost of goods sold " in your books until it is sold, whatever year that might be. This includes any item or ingredient purchased with the intent of resale, whether it is simply resold as is or included in one of your products. This inventory is carried as an inventory asset. You are right that being inventory-heavy can change your year-end financial report to a not so favorable one. Good business practice would have you moving inventory rapidly so as not to carry a large inventory over into a new year. I've yet to convince our accountant and banker that it is necessary to carry large amounts of inventory over into a new year because of the time of year we purchase some ingredients, and the requirement of taking advantage of the opportunity for limited quantities produced at times. We are really in the commodities business since we purchase seasonal goods, and once our bean counters understand this, they treat us slightly different. Be well, Marcia Elston, Samara Botane, http://www.wingedseed.com/katrina.htm " First of all, cultivate a contented spirit; a garden is a good place to begin. " Quote Link to comment Share on other sites More sharing options...
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