topic Inventory in Business & farm

Inventory

user17705201683 — Sun, 08 Feb 2026 03:38:22 GMT

I started a new business is 2024. I filed my own taxes and, being a the first time filing a business, I neglected to fill out the inventory at the beginning and end of 2024. Since we now have a great deal of inventory, it doesn't seem to make sense to start at "0." Using the inventory calculation, Total Inventory Cost = Direct Materials + Direct Labor + Manufacturing Overhead, I arrived at the below values:

Beginning of 2025 - $46,778

End of 2025 - $33,255

The result is a -50% tax rate, which seems very incorrect. Turbo Tax has presented that there is little risk for an audit and the messages say that everything is in order. Am I doing something wrong here? Is this normal?

Re: Inventory

MindyB — Mon, 09 Feb 2026 00:54:50 GMT

The return seems in order, based on the information you input, but it's not correct. Your beginning inventory must match last year's ending inventory. The IRS expects your 2025 starting inventory to be $0. You should file an amended 2024 tax return (1040-X) to correct the error.

Don't forget to also include the expenses incurred throughout the year (Beginning Inventory + Purchases - Ending Inventory = COGS)

Re: Inventory

user17705201683 — Mon, 09 Feb 2026 01:33:47 GMT

Is there a way for me to withdraw my entire filing and correct?

Re: Inventory

user17705201683 — Mon, 09 Feb 2026 01:35:50 GMT

So my 2025 is fine, but my 2024 needs to be amended?

Re: Inventory

SharonD007 — Mon, 09 Feb 2026 01:41:39 GMT

Generally, you can e-file your 2024 amended tax return using TurboTax if your e-filed your original tax return using TurboTax.

To amend your 2024 tax return using TurboTax Online follow the instructions below. Make sure you have a copy of your original federal and state tax returns.

Sign in to your TurboTax account
Under Tax Home, scroll down to Your tax returns & documents and select 2024
Select Amend (change) return
Select Amend Using TurboTax Online
Follow the prompts on the next screens and answer the questions
On the Tell us which 2024 return(s) you want to amend screen select which tax returns you want to amend (both if you completed both federal and state) and select Continue
Once you indicate why you want to amend your return, the refund/balance due sets to $0
Follow the prompts to amend your tax return

For additional information on amending your 2024 tax return, review the following TurboTax articles: Video: How to Amend Your Tax Return, How to File an Amended Tax Return with the IRS, and How do I amend my federal tax return for a prior year?

Refer to the TurboTax article Can I e-file my federal Form 1040-X amended return? for information,

Re: Inventory

Mike9241 — Mon, 09 Feb 2026 01:51:48 GMT

i don't think it's as simple as filing an amended return for 2024. You seem to be changing accounting methods. That requires filing Form 3115. Expensing inventory in 2024 may have been allowable under the small business exception and reg

1.471-1(b) (3) Methods of accounting under the small business taxpayer exemption. A taxpayer eligible to use, and that chooses to use, the exemption described in paragraph (b) of this section may account for its inventory by either:

(i) Using a method that treats its inventory as non-incidental materials and supplies (section 471(c) NIMS inventory method), as described in paragraph (b)(4) of this section; or

(ii) Using the method for each item that is reflected in the taxpayer's applicable financial statement (AFS) (AFS section 471(c) inventory method); or, if the taxpayer does not have an AFS for the taxable year, the books and records of the taxpayer prepared in accordance with the taxpayer's accounting procedures, as defined in paragraph (b)(6)(ii) of this section (non-AFS section 471(c) inventory method).

(4) Inventory treated as non-incidental materials and supplies—(i) In general. The costs of inventory treated as non-incidental materials and supplies are recovered through cost of goods sold only in the taxable year in which the inventory is used or consumed in the taxpayer's business, or in the taxable year in which the taxpayer pays for or incurs the cost of the inventory, whichever is later. Inventory treated as non-incidental materials and supplies is used or consumed in the taxpayer's business in the taxable year in which the taxpayer provides the inventory to its customer. The costs of inventory are treated as non-incidental materials and supplies under this paragraph (b)(4) are not eligible for the de minimis safe harbor election under § 1.263(a)-1(f)(2

i don't think you had an applicable financial statement as defined in IRC 451(b)(3) { irc (471(c) redirects to 451)b) for the definition of AFS

(3)Applicable financial statement
For purposes of this subsection, the term “applicable financial statement” means—
(A)a financial statement which is certified as being prepared in accordance with generally accepted accounting principles and which is—
(i)a 10–K (or successor form), or annual statement to shareholders, required to be filed by the taxpayer with the United States Securities and Exchange Commission,
(ii)an audited financial statement of the taxpayer which is used for—
(I)credit purposes,
(II)reporting to shareholders, partners, or other proprietors, or to beneficiaries, or
(III)any other substantial nontax purpose,
but only if there is no statement of the taxpayer described in clause (i), or
(iii)filed by the taxpayer with any other Federal agency for purposes other than Federal tax purposes, but only if there is no statement of the taxpayer described in clause (i) or (ii),

perhaps others will offer their thoughts as to whether to amend, Form 3115 is required or continue to expemse year-end inventory

Not sure of the entity type that is reporting this activity. If you amend, it is possible that not only would income taxes be owed but penalties and interest. Consulting a professional is certainly advisable. because you may also have to change your overall method of accounting

Mandatory accrual accounting is tied to the handling of physical goods. Treasury regulations require any taxpayer for whom the production, purchase, or sale of merchandise is an income-producing factor to maintain an inventory system to clearly determine income. When inventories are necessary, a business must generally use the accrual method for its purchases and sales to match costs against revenue.