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Belinda

Inventory for Taxes

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My tax lady has been telling me the last couple of years that I need to do inventory at the end of the year. How do y'all do this or do you even do it? Do you count the number of bottles of FO, molds and wax or what? I'm not even sure how to go about this.  I've spoken to two different wax people who haven't had to do this so I'm wondering if it differs by state or what.  As you can tell I've waited till now to do my taxes for last year LOL!

Thanks for your help!

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I'm not in the business of selling candles, but I do know a little about inventory.  Your molds, melting pots, packaging materials, and other equipment would be items that are considered expenses, not a material that you sell.  So, then what you have would be any materials (wax, containers, etc.) that you bought that you can still use which you've set aside for making/selling. 

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On 6/29/2020 at 10:14 PM, birdcharm said:

I'm not in the business of selling candles, but I do know a little about inventory.  Your molds, melting pots, packaging materials, and other equipment would be items that are considered expenses, not a material that you sell.  So, then what you have would be any materials (wax, containers, etc.) that you bought that you can still use which you've set aside for making/selling. 

I always add up what I've spent and take that to her but she says I need to do inventory on what I have left at the end of the year. I spend WAY more than I make and like most here I'm addicted to FO's so I have tons of those that I've never even used so I guess I don't really understand what she's wanting. I went into my wax room and kind of did a quick assessment of how many bottles of FO I have and not even counting several shelves I had in the hundreds so I'm thinking that's not what she's wanting. I guess I'll just have to give her what I have and see if I did it right. I'm so not a business person and wish I had not filed a tax number to do this. It's just become a very expensive hobby where I make a little money but then turn around and spend three times that amount for supplies that I never seem to have time to use LOL! 

 

So are you thinking she wants a list of what I've spent, which I give her every year, and then supplies of what I have left over? 

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Even though keeping inventory is critical part of business bookkeeping, most tax prepare might not ask for it as long as your other numbers look alright.  However, your numbers would look awful due to your excessive buying spree on FOs.  You are entitled to tax write off on anything that you have spent on your candle business, and it seems like your tax lady is trying to help you get it and trying to protect you.

 

It is always good business to keep 5 different categories of inventories in you business accounting book, but you don't have to do it in this detail.

1. Raw Materials Inventory:  Direct Raw Materials & Indirect Raw Materials

2. Maintenance, Repair, and Operating inventory

3. Work In Progress Inventory

4. Finished Goods Inventory

5. Packing Material Inventory

 

If you feel your business is too small to do the above, then you should at least do #1 Raw materials & #5 Packing materials inventory together for your tax lady.(Consult with your tax lady whether I am right about this.)

 

Raw materials & Packing materials inventory would be waxes, wicks, FOs, containers, labels(blank or printed), ink/toner, dyes, & anything that needed for candle making including such items like detergent for cleaning containers.  If you have a lot of finished candles that you haven't sold yet, then you might want to do separate inventory report on that also.  

 

When it comes to tax question, always consult with your accountant and only with your account.

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Haven't gotten quite this far yet, but when I run business expenses through Turbo Tax, I believe it gives me the option to either go the inventory route or just look at what I spent vs. made.  

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