My understanding of calculating inventory is as follows:
Inventory Value EOY 2023 = beginning of 2023 inventory value + purchases ( minus items I used personally ) + costs of labor ( not counting myself ) + materials + supplies
But what if some of the goods that were part of beginning of 2023 inventory value were sold in 2023 as well? Do I deduct those from my inventory calculation?
Do you subtract income from the goods sold in your inventory calculation? I'm confused on this.
Because if I take my previous years inventory value ( lets say its $10K ) and add it to my purchases / materials / supplies for this year ( let's say its $8k )
Then my inventory calculation is: $10K + $8K = $18K.. but IF some of those items that were part of the $10K in beginning of year inventory were SOLD in 2023, then that inventory value is false - because it makes it look like I have an inventory of $18K but indeed some of those goods were sold and reported as income..
I inputted my inventory calculation according to the formula above into turbo tax and my estimated Federal Taxes owed shot through the roof. I know I'm doing something wrong and I really need help. I don't want to get in trouble for falsifying inventory but I also don't want to grossly over pay in taxes because I can't figure out how to value my inventory correctly
Any help is GREATLY appreciated. Please and thank you!! : )
-Jeff
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Your inventory for the beginning of 2023 should be the same as your ending inventory for 2022. To calculate your 2023 ending inventory you start with your beginning inventory,
Beginning Inventory
Add Cost of Purchases
Less Cost of Personal Use Items
Less Cost of Items Sold
Equals Ending Inventory
If you are an eBay reseller, you do not need to consider cost of labor, supplies, and materials for your Inventory purchases. Those costs are added to inventory when you manufacture products. Keep it simple. Deduct those costs as expenses, if you have them. If your actual ending inventory (if you count it) does not equal the calculation above, you either have an accounting error or inventory shrinkage.
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