Inventory for auto dealer

[finesseautosales]

Hi, I run a small car lot, as a single member llc.  I am stumped on how to report inventory.  We generally buy cars at auction or take them in on trade, and usually recondition and service them before reselling.  So do I just put starting inventory as how many vehicles we had in stock on 1/1, and ending at how many vehicles we have in stock on 12/31?  Or is it how many we sold during the year?  Thank you

[MinhT]

Starting inventory is the value of the cars that you had in inventory on 01/01/2016, valued at cost prices (the prices you paid for them plus any parts you used to recondition them).

Ending inventory is the value of the cars you had left in inventory on 12/31/2016, valued at cost prices.

[finesseautosales]

Thank you for the quick reply.   I'm playing around with the turbotax system and how much inventory in the start and end of year.  And if I have a similar amount of inventory at the end of the year, I don't owe much tax.  But I could have sold a lot of cars during the year?  If that makes sense.

[Excel Auto]

Thank you. I am in the same situation. Do the same basic principles still apply for tax year 2024?

[Vanessa A]

The accounting principals for inventory have not changed recently.  

There are a few methods of inventory you can use.  The simplest method is to begin with your inventory balance on January 1st, then add your purchases throughout the year and subtract what you sold which will give you your ending inventory and next years beginning inventory.  For vehicles, this would align with the Specific Identification Method which simply means, if you paid $10,000 for the Ford Escape which is in your inventory when it sells, you remove that $10,000 from your inventory.  

The IRS says The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Your inventory practices must be consistent from year to year.