Discussion:Purchases = Start Up Costs?
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Discussion Forum Index --> Tax Questions --> Purchases = Start Up Costs?
| 29 March 2008 | |
| I have a client that will be on the cash basis. They purchased inventory prior to opening; however, they are not required to maintain inventory. Will this purchase have to be classified as start up costs?
Thank you, Kerry | |
| 29 March 2008 | |
| I'm not sure how you can purchase inventory, but not maintain inventory, but aside from that, I would say that costs incurred before starting the business would be start-up costs. | |
| 29 March 2008 | |
| I agree with Wwt, if they are not required to maintain inventory, whatever they purchased must not have been inventory. Maybe you should clarify. | |
| 29 March 2008 | |
| Many tax preparers are under the mistaken impression that a cash basis taxpayer is not required to record an inventory balance at the end of the year. This is not true... If you are selling inventory, you must show an inventory balance, cash basis or not. | |
| 31 March 2008 | |
| FLAcct : They have under $1,000,000 in gross receipts thus they are not required to maintain inventory. In other words they are not required to count and keep an inventory number on the books.
Trying to clarify here. They obviously had initial purchases of items for resale that they did not sell. Thus they have inventory on hand even though they do not count this at year end and include this number on their books. My first inclination was to reclassify this to start up but my boss says to run the whole thing thru purchases. Hopefully I made myself clear. Sorry for the confusion. | |
| 31 March 2008 | |
| You must, however, clearly reflect income. So basically everyone must maintain inventory.
Inventory purchases is not a start-up expenditure. | |
| 31 March 2008 | |
| Kgr, that is a confusing exception, that 1 mil. exception. I've decided it's meaningless. It says you must treat it as supplies. Well that's circular. Even if they are on cash, I expense only supplies used. Keep a "subsidiary" ledger. Might as well keep a subsidiary ledger for inventory. Modified cash basis, really. | |
| 31 March 2008 | |
| One interesting point, MIKEB, is that it may be possible to use average cost method. Since you are not "required" to keep inventory, the idea is that you are not required to use an approved costing/flow method. It's the only possible value I see in that exception. | |
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