I know inventory starts at 0 in the 1st year, but we had a lot of art we have made before business started that we are selling. It is capital contribution/inventory?

Forum|Forum|7 years ago
June 5, 2019
3 replies
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If I'm understanding correctly, inventory starts at 0 your first year as a business. But we have a lot of artwork we previously made before business started, that is available for purchase. Would this artwork be listed as a Capital Contribution? I know I can't put it as inventory in Turbotax until it sells. Right now we had 0 sales last year, so inventory is 0 for beginning and 0 at ending. But on a Balance sheet would this artwork be considered inventory? or something else. I can't seem to conceptually understand how to enter our situation into the software because it doesn't match any of the examples out there. Most start at zero, make purchases, create something, then have an inventory. Thanks in advance for your assistance.

TurboTax Business Windows

Best answer by MichaelL1

Your issue is that the inventory contributed probably has a small cost or basis to it. Whatever the basis (or cost to produce) can be added to contributed capital and would be treated as "purchase" of the Cost of Goods Sold area in computing the ending inventory.

"Determining the Basis of Contributed Property to the Partnership

Sec. 723 provides that a partnership’s basis in contributed property is generally the contributing partner’s adjusted tax basis in the property, plus any gain the partner recognizes under the investment company rules."

Source: https://www.thetaxadviser.com/issues/2014/apr/casestudy-apr2014-vm.html

Older link, however, rules still apply.

This will give you a basis in the inventory, however, it will probably be low due to you having produced it yourselves.

MichaelL1

Level 15

What type of business entity do you have? Partnership? LLC that is a 1120S or a 1120. You are contributing capital when something is moved from personally held to the business. The value you can place on this in the business can get complicated and somewhat confusing. So give me some more details and I'll see if I can help.

shannarose77Author

Level 2

Partnership. Husband and wife. Art studio in commercial building. Photography and quilting. We had no sales our first year, so inventory is zero for beginning and end. But we technically have in layman's terms what I consider inventory (previously made artwork).