I placed one snack vending machine business last year. Is that considered a retail business? do I have to report EOY inventory?

[gmabril]

If YES, is there a minimum inventory we most have before we claim it?

[DianeW · Accepted solution]

Yes, this is the reason you are able to produce your income (sale of products).  There is no minimum amount of inventory.  

You begin by entering the beginning inventory which is zero if you started the business this year (it may not be asked based on the response to that question).  Next:

1. ending inventory (your cost of products on hand on December 31st) 
2. cost of your purchases (not retail value), 
3. cost of purchases withdrawn for personal use
4. result is the amount of your cost of goods that will be used against the sale for 2016.

• Note:  The ending inventory will always be the beginning inventory for the following year.

The purpose of inventory and/or cost of goods sold is that the IRS does not allow items that have not yet been sold to reduce the income received during the year from other products.  The ending inventory should reflect only items on the shelf that were not sold on December 31st. 

The income is reported because you do have the product, even though it may not be sold until 2017, at which time it will become part of your cost of goods and used against the sales proceeds.