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In the answer to this question it says inventory is not taxed, only the net profit. Then why does the IRS want to know what your inventory level is? Me and my accountant were plugging in some ending inventory numbers just to see how it changed the botXXXXX XXXXXne and prepare for future taxes. Example we raised the ending inventory level by $20,000 and it raised taxes due $9000. He said thats just the way it is. It seems that if that was true all businesses would have empty shelves in December. He basically said I should have as little inventory as possible at Dec 31. Can you explain this or is he doing something wrong?
Submitted: 6 years ago.Category: Tax
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Answered in 9 minutes by:
5/2/2011
Tax Professional: Jacy, Certified Public Accountant (CPA) replied 6 years ago
Jacy
Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience: Nine years individual income tax preparation and consulting
Verified

Hello,

 

You accountant is correct. Ending inventory is counted to determine the cost of goods sold during the year. The cost of what is left in inventory is not a deductible expense for that business period. The purchase cost of your ending inventory is deducted when it is sold in the future.

 

Thank you for your question. Please Reply if you need additional help.

 

Jacy

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