On Thu, Feb 24, 2011 at 5:50 PM, Duaine Hechler <dahechler at att.net> wrote: > On 02/24/2011 03:48 PM, George F Emerson wrote: > > Wim B Wrote: > > >If you brought in, lets say, $50,000, last year, and you bought $1000 > > worth of parts, then you are taxed on $49,000. > > > > Not exactly. I suppose it could work that way if you never bought a > > replacement part until you had a customer ready to buy it, but that > > would mean that if you found a bridle strap that needed to be > > replaced, you would have to order the part and come back a week or so > > later to install it. I don't think any of us do business that way. > > > > If you purchase parts in advance of the need to have them available > > for immediate use, such purchases cannot be written off as an > > expense. It increases the company's inventory of replacement parts, > > and is therefore a company asset. At the end of the year, you may > > well pay income tax on income that was not realized as cash income, > > but as an increase value of inventory assets. > > > > If a company derives any income from sales, the IRS will need to see a > > beginning inventory (the same as last year's ending inventory), plus > > inventory purchases made during the tax year, minus the year's ending > > inventory. The difference is the cost of goods sold, which is what is > > deductible as an expense for that year. It might be that the cost of > > goods sold turns out to be less than expenditures on inventory > > purchases, in which case, you have an indirect profit from an > > increased value of inventory goods. On the other hand, the cost of > > goods sold might turn out to be greater than expenditures for > > replacement parts, in which case, you have depleted inventory > > accumulated in previous years, and reduced the value of the end of > > year inventory. It's not like you are paying tax on parts you bought > > to eventually sell to customers. Whether you care to look at it that > > way or not, the IRS views it as income, whether it is cash income or > > an increase in the value of company assets. > > > > Frank Emerson > Frank, > > That sounds all well and good, except by my tax man, said not to worry > about inventory and mark it as supplies or COGS. > > Because, this is part of my situation, I buy 3 yards of bellows cloth > for rebuilding player reservoirs and pumpers. > > Now, I have a single piece of cloth 3 yrds by 60" wide. So I cut a bunch > of material to use on recovering these items. Left over, I have a piece > of material with a straight line on a couple of sides and a zip-zap of > material on the other side, so now I have what, should be called "scrap" > because it's not good for any bellows work as it is. > > I have a box of about 10 of such pieces. > > How do you deal with things like this as - quantifiable - inventory - - > answer - you don't ! > > You mentioned bridle straps - ok - lets look at that: > > You buy a box of bridle straps for supplies and repairs out in the > field. If memory served me, a box is sold by 100 per box. > > Ok, so you do a piano action (88) = leaves 12. Over the year you place > 4 = which leaves 8. > > Example: > > First, was the box bought as a single order or as a big enough order to > get a discount per box. > > Let's take the simplest, single order. > > The box of 100 bridle straps cost $12.95 = or $0.1295 for strap = > totaling 8 x 0.1295 = grand total $1.036 > > Now, based on your conviction, you are going to spend the time to figure > out this for taxes - give me a break. > > AND, everything else you bought !! > > I know I don't have time for all of this - so just write if off as a > one-time cost of $12.95 - with NO INVENTORY - you WILL use it eventually. > > Back to reality, I can see doing this if we were truly in the "retail" > business. > > Duaine > > -- > Duaine Hechler > Piano, Player Piano, Pump Organ > Tuning, Servicing & Rebuilding > Reed Organ Society Member > Florissant, MO 63034 > (314) 838-5587 > dahechler at att.net > www.hechlerpianoandorgan.com > -- > Home & Business user of Linux - 11 years > > Frank wrote ; It's not like you are paying tax on parts you bought to eventually sell to customers. That may be true for most of you however I live in Wisconsin, we have something called "doomage" here a tax each year on business "property" which includes tools, vehicles, office machines(computers, printers, etc.) & inventory! Mike -- I think we are a product of all our experiences. Sanford I. Weill<http://www.brainyquote.com/quotes/quotes/s/sanfordiw283095.html> Michael Magness Magness Piano Service 608-786-4404 www.IFixPianos.com email mike at ifixpianos.com -------------- next part -------------- An HTML attachment was scrubbed... URL: <http://ptg.org/pipermail/pianotech.php/attachments/20110225/9423bfdf/attachment.htm>
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