We have a small sporting goods business that hasn't made a profit so we're going to have 2017 be the final year. We're preparing to just absorb the inventory for our personal use but I'm concerned that we might have to pay taxes on it. Is it considered an income or not?
I'm assuming from your statement that the business is a Sch C business.
No, you won't have to include the inventory into income.
BUT, you can't deduct the cost of the inventory either...because it is being converted to personal use.
Since your ending inventory will be zero, you will have to reduce your COS/purchases by the amount of inventory you convert to personal use.
using the standard formula for computing cost of goods sold
Beginning Inventory $x,xxx
Purchases $ xxx
Goods Available $xx,xxx
Less Ending Inventory ($x,xxx)
Cost of Goods sold $ xxx
If ending inventory becomes zero, that increases cost of goods sold. So for items taken out of ending inventory for personal use, you have to make an adjustment to:
1.) decrease purchases by amount converted to personal
2.) decrease cost of goods sold by amount of inventory converted to personal