Who loves to keep their biz bookkeeping super simple? If you raised your hand, keep reading! We have some EXCITING news about simplifying your inventory tracking that you are going to want to hear! At BF Bookkeeping we like to keep things super simple when it comes to tracking our business finances; and this change to IRS regulations helps us all do exactly that.
New for tax year 2018 and going forward, there are now two methods allowed for determining your expense related to inventory. Yay for choices! The first method is the one we have all used up until now. This is the accrual method where you take the product expense when you use or sell your inventory, whether that is in the current year or subsequent years. The IRS calls the accrual method “tracking inventory.” This method requires you to take an inventory count at year end and do a calculation to get to your expense for the product used during the year.
If you qualify, you now have the option to use the cash basis method where you take the expense for your inventory in the year you acquire it. The IRS calls the cash basis method “not tracking inventory.” This method doesn’t require you to take a year-end inventory count and the calculation to get your expense for the year is not as complicated.
In order to help guide our clients to keep it super simple, we recommend they consider using the cash basis method. Your choice if you implement it in tax year 2018 or a later year. For more information, start here on the IRS website or ask your tax preparer to help you determine if you qualify. Hint: most of us will!
We hope you are as excited as we are about this change! While it doesn’t mean we do nothing at all with inventory, it does save us some of the year end work. Need a few tips for best inventory practice? Give us a buzz. We’re happy to help!
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