Inventory/Tax Question. Please Help!

Forum|Forum|4 years ago
February 4, 2022
1 reply
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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.

Not A Product Question

Anonymous_

Level 15

Did you input your 2021 inventory purchases as purchases?

Did you take a physical inventory at the end of the year and input that figure as your ending inventory?

softballbombAuthor

Level 2

Hello tagteam, thanks for your reply. Yes I did enter my COGS through all of 2021 into turbotax online in the Income & Expenses section and category "Cost of Purchases."

I cant access the forms section as I use turbotax online. But I see its the same thing, COGS.

Anonymous_

Level 15

I am not certain where the issue could be with respect to your COGS.

If your beginning inventory is correct and you entered your purchases and ending inventory correctly, then your COGS should have been calculated by the program and should be accurate.