Okay, I will try and explain this the best I can and please note, the amounts below are fiction but gives an accurate example of what I am needing help with.
I have been doing my own taxes for many years and own my own business which I am a single member LLC so I file as a disregarded entity. Anyway, I ended 2020 with an inventory of $150,000 so that means my starting inventory is $150,000 for 2021. I built up savings over the years so I took money out of my savings and purchased a lot of inventory through 2021 which ended up putting my ending inventory of 2021 of $450,000.
What I am having trouble grasping is when I input all of my normal info into turbotax business editions such as gross income, COGS, other deductions such as fees, etc. I come to the inventory section where turbotax already has the beginning inventory at $150,000 which is of course correct and is not changed. I then input my ending inventory of 2021 at $450,000. It drastically made what I owe the IRS go up over $100,000 ?? Is this correct? I couldn't believe it as its saying my taxable income is almost $1M and it seems its because of my inventory. From what I understand, inventory is an asset correct?
What I do not understand is why am I paying more in taxes for inventory that I purchased with money from my savings account that I had already paid taxes on through the years of earning it? I just do not understand how this works. Can someone please elaborate ?
For example, if I would have just left the cash in my savings and not purchased inventory with it, my taxes owed would not be $100,000 more since my inventory would have stayed around what the 2021 beginning inventory was - $150,000
Thanks in advance for any help.
