Post by ccoyle78 on Nov 5, 2017 18:48:29 GMT -6
Inventory: An overview
Many come to this group and have 1 pressing question and main point of confusion: Inventory.
This can be a very rough part of doing and figuring taxes because bottom line is of you are a creative, you NEED an inventory of all your materials.
An inventory item is anything that will end up with your customer in your final product. There are some exceptions to this, as if it can not be reasonably counted in some way without ruin then it’s an expense. Be aware the list of what can not be counted is VERY small.
Everything you buy with business funds for your products must be in your inventory. Items you have before your business was created it is best to add them to your inventory as you find a need of them. Remember though, you MUST have a receipt for the item to give it a value.
Inventory is an ASSET to your business. An Asset is not an expense. This means until the item walks out the door somehow it is NOT a deduction on your tax return. Many creatives do not realize this and go hog wild buying inventory only to be burned at tax time and have no funds to pay the taxes on the profit they did not think they had. The more inventory you have on hand at the end of the year the higher your profit margin for the year. One way to combat this is to stop buying in November. Another is to keep a VERY close eye on your inventory on hand and do not let it get out of hand.
Everything in inventory will have to be counted at the end of the year. Keep a spreadsheet of some kind (Janet’s Paper and Spark Inventory Sheets are my favorite) that records every item purchased, the cost, the unit breakdown, the end of year units remaining, and the total end of year cost for those units. Inventory is perpetual. This sheet will be used every year.
The count can be different things for different materials and mediums. The basic is how it is bought is the unit used. Fabric is square INCHES (width times length. Measure BEFORE washing). Paint is by ounces. Yarn is by weight. The big thing is to remember to weigh when you buy it and record that. Then you weigh again at the end of the year.
On your Schedule C you will not see inventory. You will see Cost of Goods Sold. This is a calculation that uses your inventory numbers. This calculation can be affected greatly depending on if you choose to use First in First out or First in Last Out method of recording and counting. You MUST pick 1 method and STICK with it.
Inventory can be complicated. If you feel that you need more guidance, the Education Subscription includes a wealth information on inventory including a list of items to be considered inventory, the units of measure for these items, a walk through of the Cost of Goods Sold section, tips and tricks of how to measure and make inventory easier.
Many come to this group and have 1 pressing question and main point of confusion: Inventory.
This can be a very rough part of doing and figuring taxes because bottom line is of you are a creative, you NEED an inventory of all your materials.
An inventory item is anything that will end up with your customer in your final product. There are some exceptions to this, as if it can not be reasonably counted in some way without ruin then it’s an expense. Be aware the list of what can not be counted is VERY small.
Everything you buy with business funds for your products must be in your inventory. Items you have before your business was created it is best to add them to your inventory as you find a need of them. Remember though, you MUST have a receipt for the item to give it a value.
Inventory is an ASSET to your business. An Asset is not an expense. This means until the item walks out the door somehow it is NOT a deduction on your tax return. Many creatives do not realize this and go hog wild buying inventory only to be burned at tax time and have no funds to pay the taxes on the profit they did not think they had. The more inventory you have on hand at the end of the year the higher your profit margin for the year. One way to combat this is to stop buying in November. Another is to keep a VERY close eye on your inventory on hand and do not let it get out of hand.
Everything in inventory will have to be counted at the end of the year. Keep a spreadsheet of some kind (Janet’s Paper and Spark Inventory Sheets are my favorite) that records every item purchased, the cost, the unit breakdown, the end of year units remaining, and the total end of year cost for those units. Inventory is perpetual. This sheet will be used every year.
The count can be different things for different materials and mediums. The basic is how it is bought is the unit used. Fabric is square INCHES (width times length. Measure BEFORE washing). Paint is by ounces. Yarn is by weight. The big thing is to remember to weigh when you buy it and record that. Then you weigh again at the end of the year.
On your Schedule C you will not see inventory. You will see Cost of Goods Sold. This is a calculation that uses your inventory numbers. This calculation can be affected greatly depending on if you choose to use First in First out or First in Last Out method of recording and counting. You MUST pick 1 method and STICK with it.
Inventory can be complicated. If you feel that you need more guidance, the Education Subscription includes a wealth information on inventory including a list of items to be considered inventory, the units of measure for these items, a walk through of the Cost of Goods Sold section, tips and tricks of how to measure and make inventory easier.