I know when I start getting the same question in my email box over and over again, it’s time to blog! I have been harping on what to do before year end - but now I find it’s time to share what NOT to do in your year end tax planning.
A lot of people are under the impression that if they buy a bunch of inventory before year end, that they will get a big tax deduction for their 2007 taxes. NOT SO. You only get to deduct the cost of inventory purchases when you sell your products.
Little example here: Jane was on a message board and read another distributor’s post. That person was telling the world to buy inventory as a way to reduce their taxes. Good thing Jane has me as her CPA. She contacted me and thought maybe there had been a law change. “No” I said, with a heavy sigh. It’s just that time of year -
Just for the record, let me say this one more time. Do not buy a bunch of inventory as a way to reduce your current year tax liability. You can only deduct the cost of inventory as you sell the product.
Does anyone out there have any thoughts on this subject they would like to share?
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3 Responses:
December 23rd, 2007 at 11:25 am
Hi Vicky - I don’t have any thoughts on this topic.
Just want to say how much my wife and I appreciate the insights you have shared over the last 6 years.
Your perspective on taxes for home business and Direct Sales are amazing.
All the best
Mark Semple CCC
January 22nd, 2008 at 7:11 pm
OK so I already bought into this bad advice and got inventory at the end of the year. Now what? Will I get less money back or even owe? My cost was over $2000, more than triple last years ending inventory cost.
February 13th, 2008 at 3:15 pm
Becky,
First - let me apologize about ignoring your comment for so long - I have some things to learn about where the comments reside - how to release them, comment on them, etc.
You won’t get a deduction for the cost of inventory until you sell it. Shame on whoever told you to do that. At least for tax purposes, you did not benefit in 2007.