Inventory Value

[csimo]

I have a business that produces handmade items for sale. When I calculate the value of my inventory is it based on the finished items ready for sale?

Example: 

Number    item     wholesale cost      total

10          baskets      10.                        100.

I have assumed that wholesale cost of all my inventory was what I should use for the inventory value on my return. Is this correct?  We do not pay any labor costs and the cost of the other materials has been reported in the past (using up materials this year). Once created they have value, but very little before.  We make shaker boxes for sale on Etsy.

[DavidD66]

I would say your inventory would consist of up to three categories:  raw materials, work in progress, and finished goods.  At year end you may only have finished goods.  The value for tax purposes would be your wholesale costs. 

[csimo]

Thank you - forgive me for being obtuse - I based our inventory value on the whole sale amount I would charge retailers (we sell on consignment at times). The majority of our sales are retail on Etsy. I took the number of items by the whole sale cost to arrive at my inventory value.  

I am restating the original question because my spouse is convinced it should be a lower value and I'm not in agreement.  If you could clarify further for the peanut gallery I'd appreciate it.

Thanks!

[DaveF1006 · Accepted solution]

Yes, you would use the wholesale cost to you to determine the value of the beginning, purchases and ending inventory. Please review this IRS link, for more details and visit the section where it addresses inventories. There is a wealth of information for you to discover in that section. in that section explains how to set up an accounting method for setting up your inventory valuations.  Read this thoroughly !!