How do I handle inventory that I bought last year but have not sold the product. I put all the cost an expense last year. THis makes my loss over stated?

Forum|Forum|3 years ago
January 25, 2023
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TurboTax Self Employed Online

ThomasM125

While you are allowed to expense purchases if your yearly sales are under $25 million dollars and your tax treatment of inventory conforms to your financial statement treatment of it, it may be wise to not deduct your purchases before you sell them. It may be an audit trigger to report more in purchases than sales, and if you deduct your purchases in the year before you sell them, you will just have to pay the tax on those sales in the following year.

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Rick19744

Employee

A couple of comments:

Your facts don't indicate whether this is your initial year for the business. This is key, as depending on how long you have been in business, you may have already established an accounting method.
To expand on the previous response, a small taxpayer is exempt from maintaining inventory, thus allowing the use of the cash method, if your average annual gross receipts (gross receipts can be different than sales) for the three-tax-year period ending with the tax year preceding the tax year meets the Section 448(c) threshold ( which is $27 million or less for 2022).
Many small taxpayers appreciate the flexibility and simplicity to maintain the cash basis for inventory, however, you are correct in that you need to plan for the following year when you sell the product.
This may be an area that you want to have a consult with a tax professional who can help you determine the best practice for you and your business.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.