Jan 7, 2014

How Managing Your Inventory Can Cut Your Taxes

It’s often said that two of life’s certainties are death and taxes. What’s said less often – but is just as certain – is that your tax liabilities can be the death of your business.

You work hard to create profits so you can re-invest those profits into inventory to build your business. Then, when the time comes to pay the IRS, you have no cash because it’s all tied up in your inventory.

The last time I checked, the IRS didn’t accept Victorian rockers or Depression glass as payment for tax liabilities; they actually wanted cash. To make sure that you have enough cash when tax time comes, you need to get a good handle on your inventory.

For non-accountants, here’s a look at how inventory and taxes are related (to keep it simple, let’s assume that there were no returns and that no inventory purchases were made): Net Sales minus Cost of Goods Sold equals Gross Profit. Read More

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