Sch C inventory

[L.S.]

Client called and said they will be downsizing their inventory. They are giving away a lot of things and getting no money. How does this affect their tax return? We just show the amount that is now in the inventory? Are there red flags if the amount is considerably less than previous years?

Thanks for any help.

[mcb39]

Client called and said they will be downsizing their inventory. They are giving away a lot of things and getting no money. How does this affect their tax return? We just show the amount that is now in the inventory? Are there red flags if the amount is considerably less than previous years?

Thanks for any help.

It will adjust itself in the Cost of Goods Sold. Opening Inventory, Plus Purchases, Less Closing Inventory = COGS.....It will increase his COGs and decrease his Gross Profit. (I hope I am thinking correctly on this one as I have had a summer cold for a week). If not, someone is sure to jump in and address any error I may have made.

[jainen]

>>They are giving away a lot of things and getting no money.<<

You are going to have to ask some more questions, like WHO is getting this stuff. If they are simply dumping expired or obsolete product, it will be reflected in the closing inventory on Schedule C Line 41. But other possibilities include discount sales, perhaps as some form of barter, and withdrawal for personal use, perhaps as gifts or charitable contributions.

[L.S.]

>>They are giving away a lot of things and getting no money.<<

You are going to have to ask some more questions, like WHO is getting this stuff. If they are simply dumping expired or obsolete product, it will be reflected in the closing inventory on Schedule C Line 41. But other possibilities include discount sales, perhaps as some form of barter, and withdrawal for personal use, perhaps as gifts or charitable contributions.

For right now, they are giving the stuff to another business, but in the future she indicated that they would be trading the merchandise & receiving repairs from the other business so I would think this would be barter. How would that be shown?

[jainen]

>>How would that be shown?<<

Barter is supposed to be reported as a sale at FMV. I think you post it as soon as the barter credit is accrued, even if the trade goods/services aren't received until later.