![]() Some are saying that they are shutting down the cash-basis inventory party we had been enjoying during 2018-2020 (deducting inventory when purchased), but I’m not so sure about that. However, more recently in January 2021 the IRS issued final regulations to answer questions raised by the TCJA. That being the case, I changed my answer about whether or not you could deduct inventory when purchased to a solid “it sure looks that way.” Not everyone is interested in a technical explanation, so before I dive into the detail, I’ll get right to it:īefore 2018, to the question of “can I deduct my inventory when I purchase it,” I would have answered with a solid “no.”īut the Tax Cuts and Jobs Act (TCJA) of 2017 changed all that. I’ve also frequented forums on eBay, Amazon, and Etsy to read the back-and-forth among fellow sellers trying to educate each other with sometimes misguided advice. I get these questions often from resellers. What is cost of goods sold? How do I calculate it? Generally, you can use the cash method for all other items of income and expenses.One of the most misunderstood accounting concepts in the ecommerce and reselling space involves how to deduct your inventory costs. However, see Exception for Small Business Taxpayers, later. If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. ![]() However, the following restrictions apply. Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. Is accrual the best way and not complicated for my business? Thanks. I intentionally don't have orders or expenses spanning the beginning of year. But I have almost zero end of year carry over of expenses, receipts, sales, or anything. My main concern is getting confused using accrual method. " It also sounds like if you claim "hybrid method" that leaves the doors open to interpretation somewhat as long as you are consistent. I read Pub 538 as saying "as long as I use accrual for sales and inventory, I can use cash for expenses. She also stated that within a few years the irs plan is to have every return inspected by a human, not just computer, and that not using the right accounting method will be an audit trigger. have COGS (cost of goods sold) to spread that expense out over different years. I know some businesses are expensing inventory immediately but I need to remain accrual for inventory i.e. It is not going to make a difference tax wise, I just want my taxes to be as simple as possible and at the same time be clearly following the rules so as to not be burdened by audits, etc. My accountant says I must use accrual for Inventory, Sales, and Expenses, and that only short term liabilities can be cash basis using Hybrid method. Location Specific Small Business Subreddit No Personal Attacks, Trolling, or Toxicity.You can promote your business in a relevant reply to a post or comment in other threads. ![]() Offers of free services under the pretense of 'building your portfolio' are considered business promotion, and not permitted in posts. Promote your business in the weekly Promote-your-business thread only. Practically all content, small business-related or not.Īllowed are links or quotes in comments and replies that are relevant to and come normally in the course of discussions. Note: You can post own experiences in the new weekly stickied or pinned share-your-experience thread.īlogspam has been defined very early in r/smallbusiness as content that maybe text articles, images, or video. NO business promotion, lead generation, rants, info-tainment, success stories or unsolicited instructional texts, treatise, or how-to's are permitted in posts. You ask a question about starting, owning, and growing a small business and the community answers. R/smallbusiness is a question and answer subreddit.
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