wicken Posted January 31, 2007 Share Posted January 31, 2007 Ok, Is it better to have more or less ending inventory at the end of the year in ready made product?I have alot less this year. Quote Link to comment Share on other sites More sharing options...
mommy2xp Posted January 31, 2007 Share Posted January 31, 2007 I believe it's best to have less. As what you have left on hand is considered "income". Someone correct me if I'm wrong. Quote Link to comment Share on other sites More sharing options...
CSAS Posted January 31, 2007 Share Posted January 31, 2007 It depends, really.It depends on what year of business you are in.I've heard that if you do not show some sort of profit in the 3rd year, you may throw a red flag up. The IRS could audit you and determine that it is not a business, but a hobby.Inventory all depends on what you have in stock, what you purchased, and what you sold.The less inventory you have, you most likely will show a profit.So, it's probably a good thing to have less inventory.It does not matter if it is ready to be sold or not (I believe). Because you make your products, your inventory is your inventory, whether it's on the shelf or still in the box.This is my opinion on what I've heard. I am not a CPA, and I do not play one on TV.HTHTracy Quote Link to comment Share on other sites More sharing options...
lindsaycb Posted January 31, 2007 Share Posted January 31, 2007 So if its a hobby...do I even need to do taxes on it? I mean, if I want to lose money for ten years...I should be able to, right?That's what I need clarification on. Quote Link to comment Share on other sites More sharing options...
candlebean Posted January 31, 2007 Share Posted January 31, 2007 So if its a hobby...do I even need to do taxes on it? I mean, if I want to lose money for ten years...I should be able to, right?That's what I need clarification on.LOL - if you want to lose money for ten years that's fine, but if you receive money for anything that you make, you have to pay taxes on it. If you just make it and give it away then you have nothing to worry about If someone says "Hey super candle hobby lady, will you make me a candle if I buy you all of the stuff to make it?" I think that would be OK, because you're not actually receiving money to do it. Maybe I'm wrong or maybe that's just a bad example - who knows? I'm here in my cube at lunch and quite frankly, nothing makes sense when you sit in a cubicle. Quote Link to comment Share on other sites More sharing options...
Candle Man Posted January 31, 2007 Share Posted January 31, 2007 I'm sure each state is different, here in my state if you sell $500 or less in a year then you are considered a hobby and don't have to file. If you have a tax # and you sell (even $500 or less per year) You are suppose to charge sales tax and pay the sales tax to your state. Quote Link to comment Share on other sites More sharing options...
jennifer Posted January 31, 2007 Share Posted January 31, 2007 As far as federal income taxes are concerned if you are a hobby....You cannot 'lose' more money than you 'make'.So if your hobby income is $500, but you lost $750, you can only claim a loss of $500 to match the $500 hobby income.A hobby cannot produce an actual loss of income wheras a business can. Quote Link to comment Share on other sites More sharing options...
lindsaycb Posted January 31, 2007 Share Posted January 31, 2007 I know I can't lose money if I'm not making money to buy more stuff...but I can use my DH's money to do that. So its still a loss, right? But now if I lose for three years & then some....what's the IRS do..shut me down? That's what I'm getting at more so. People invest in tax write offs all the time, right? So is there a point that the IRS won't look at that write off anymore? If I buy a building, but don't rent it out for three years, so the mortgage, utilities are just wasted...do they come knocking in three years and tell me to sell it? Or give it up? Quote Link to comment Share on other sites More sharing options...
candlebean Posted January 31, 2007 Share Posted January 31, 2007 But now if I lose for three years & then some....what's the IRS do..shut me down? That's what I'm getting at more so. I talked to my mom who is an accountant. At least for the state of Connecticut, if after 3 years you are not making a profit, they won't close you down. You'll just have to prove to the government that you are selling what you make and that you are a business, and they will give you more time to show a profit. They don't want to lose any of the sales tax or Business Entity Taxes they're getting from you! Quote Link to comment Share on other sites More sharing options...
sudsnwicks Posted February 1, 2007 Share Posted February 1, 2007 I know I can't lose money if I'm not making money But now if I lose for three years & then some....what's the IRS do..shut me down? That's what I'm getting at more so. They won't shut you down, you don't have to worry about that. But they may 'downgrade' you to a hobbyist. Which means you won't be able to report negative income. At worst you can only report zero. So this means some of your expenses wouldn't be deductible. Quote Link to comment Share on other sites More sharing options...
BLSoaps Posted February 2, 2007 Share Posted February 2, 2007 If they believe you have been falsely claiming business losses to receive extra in your tax return, they can audit you. If you cannot prove your case in an audit, then you'll most likely need to pay back those deductions, as well as pay fines on them. Altogether, it's not good. There should be some books at your library on taxes for home or small businesses. They're a nightmare to read mostly because they're usually boring as h---, but to run your business safely and properly and legally, they're important to read.An example of a couple that was "scamming" the IRS...They signed up to be reps in one of those big MLM companies. They'd host these elaborate parties under the guise of selling the company's products, and signing up new reps underneath them. Basically, they just wanted to throw these awesome parties for their friends and write them off. They never showed a profit, and always claimed ridiculously high "cost of business" expenses on their tax returns. They finally got busted. I don't remember exactly what their penalities were, but they were huge. I know if you outright fraud the IRS, it can mean serious consequences, even jail time. I know nothing we're talking about here constitutes anything like that. But you just want to make sure that you can prove you're a business. As long as you are making an effort, and can prove that effort to the IRS, that you're trying to make your business profitable, you shouldn't have anything to worry about. Another example of this book...a couple was getting into the horse breeding business. A very difficult business to be successful in, especially within that allotted "5 year" span the IRS gives you. They went over 10 years without showing a profit, but because of everything they were doing to TRY to gain a profit, the IRS never had problems with them during their audits. They enlisted in horse shows, and other things within their field to gain exposure.So for us, even if we're not making a profit, we need to make sure we're doing things that show we're a legitimate business. File with your state, get business cards, letterhead. Have a logo professionally designed. Invest in a website, or craft shows. Show that you're doing things to actively grow your business, and keep PROOF of these things, and even if you're audited, you should be okay.Fun stuff...isn't it? Quote Link to comment Share on other sites More sharing options...
Allicia Posted February 2, 2007 Share Posted February 2, 2007 I am not sure but I know where I work we ordered about a million dollars in raw materials right before new years. LOL with no idea where it was going to go when it arrived. It wasnt finished product but it was materials to make the finished product. The boss said why give the irs anything you dont have to. Quote Link to comment Share on other sites More sharing options...
tamsoycandles Posted February 2, 2007 Share Posted February 2, 2007 Maybe I'm wrong or maybe that's just a bad example - who knows? I'm here in my cube at lunch and quite frankly, nothing makes sense when you sit in a cubicle.Ah, heck. That's my problem then. 11 years of cubicle living has dumbed me good. Quote Link to comment Share on other sites More sharing options...
tamsoycandles Posted February 2, 2007 Share Posted February 2, 2007 As always, check with a tax professional... but... if you do cash based accounting, you don't even need to look at inventory. You figure your expenses and your income. The difference is your profit, though potentially negative.I did an inventory last year and then fired up TurboTax. That's when I discovered that I could do cash-based. Because of the low $$ of business I do, I could do cash based. Check it. Save yourself a BUNCH of time.Tony Quote Link to comment Share on other sites More sharing options...
Beth-VT Posted February 2, 2007 Share Posted February 2, 2007 I know I can't lose money if I'm not making money to buy more stuff...but I can use my DH's money to do that. So its still a loss, right? But now if I lose for three years & then some....what's the IRS do..shut me down? That's what I'm getting at more so. People invest in tax write offs all the time, right? So is there a point that the IRS won't look at that write off anymore? If I buy a building, but don't rent it out for three years, so the mortgage, utilities are just wasted...do they come knocking in three years and tell me to sell it? Or give it up?The IRS absolutely DOES NOT LIKE what is referred to as "co-mingling of monies". Your personal funds (or funds from other sources) should be kept totally separate from your business monies.In other words, you can't 'borrow' or get money from elsewhere, spend it, then claim it as a loss. Quote Link to comment Share on other sites More sharing options...
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