Saturday, December 31, 2011
Inventory is Not a Business Expense
As we are at year's end and taxes are looming, I have heard many directors tell consultants that ordering inventory at the end of the year is a wise thing to do as it increases your business expense. Formerly from an accounting background this statement has always made me want to scream. Inventory is not an expense, it is an asset. If you need product in December, than order product in December, and if you don't need product in December don't order product in December. The less you have on the shelf, the less you have to count when you do your inventory.
A little piece from our Tax info on intouch is copied below:
You should remember these three facts about inventory/cost-of-goods-sold deductions:
• The amount of this deduction is not the total of all inventory (product) you purchased during the year, unless you sold exactly what you bought.
• The amount of the deduction is not the amount of product you have in stock at the end of the year.
• The amount of the deduction is the cost of product that you sold or distributed as hostess or incentive gifts-with-purchases during the year. Thus, stocking up before December 31 will not increase your deduction.
Inventory is not deductible until sold. (Emphasis was added by Mary Kay)
Any inventory that is purchased but not received before 12/31 will be counted as part of your ending inventory. The ending inventory becomes part of your cost of goods sold computation. All those purchases do is to increase what you have on your shelf.......it does nothing for tax deductability.
and the other little things that makes me want to scream... no we can not deduct nylons and manicures/pedicures. IRS would LOVE to audit some of the consultant's tax returns with some of the things I have overheard.
Remeber when indoubt check with a professional and always error on the side of safety. An IRS audit is noooooo fun.
Happy New Year Everyone!!! Be Safe!!
For Further Reading...This Week On Pink Truth - Click Here
Pros and Cons of Mary Kay - Read or Contribute or Both!
First Post - Why I Started This Blog
The Article I Wrote For ScamTypes.com (here) (there)
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