Calculating Inventory in a Salvage Business

ory short, I run a very small auto recycling facility. Small as in one person, though I expect that will change by the end of the year. I'm tired of killing myself 80 hours a week.

Filing my taxes this year (I'm very late, yes) and I'm seeing some dramatic issues for 2018. First of all there's the fact that I currently owe $35K that I absolutely do not have before deductions, and that's with two thirds of last year being a full time student and not working much. This year's pre-deduction taxes will be every bit of $100K owed if the trend continues. But that's another story entirely.

My question is, how do I account for opening and closing inventory? I acquire my inventory by purchasing salvage vehicles at auction and then tearing them down into individual parts. So unless I arbitrarily assign a value to each individual part, I don't have a way of accurately calculating the value of my current inventory. What I can track is profit and loss per vehicle, but I don't think that really does me any good. So if anyone has any suggestions on how to fill out the opening and closing inventory lines on my schedule C, I'd really appreciate it.

I need an accountant. My accounting classes from freshman year are long gone.

Smallbusiness | 👁 904 | Posted 2018-11-15 | Share on Facebook | Twitter | Google+

| Modified: 2018-11-15 | Author:


mmotts55 2 years ago

The BOOK I wrote below is only a statement since I do not know all the facts and I am not engaged to perform services for you. However, I would like to help you as much as I can. With that out-of-the-way, since you have the profit for each vehicle, I hope you have an accurate cost of goods sold (COGS) for each sale. You would at least have something for your COGS (although not accurate) which is needed for taxable income. Based on what you wrote, your options are very limited without an inventory number and without seeing all your records, I dont know if you can even come close to calculating a reasonable beginning and ending inventory. The nature of your business could produce a large amount of pilferage and shrinkage which are both COGS and would result in a lower inventory value. Future reference: Inventory you do count in the future should be at the lower of your original cost or market value. The nature of your business tells me your market value would be higher so using your cost is fine. Also, make sure you do not include expenses in COGS. Items like utilities and supplies need have their own line item in the expense section of your return. Conclusion; I can only advise you to hire your own tax professional to review all of your records and determine how your return should be prepared. While the chances for an audit are very slim, there is a chance and it wouldnt be fair for me or anyone else to tell you what you should do when its virtually impossible to calculate an accurate inventory. I want to disclose that I am a CPA with 30 years of corporate inventory experience.

r1ngr 2 years ago

Recommend you ASK other small businesses in the area to get a referral... to an accountant.

lxpeery 2 years ago

Wut I should clarify, not sure what you mean by "I highly recommend you as other small businesses in the area and get a referral or two."

andy_91307 2 years ago

A good accountant is worth every penny and will (almost) always pay for themselves. I highly recommend you ask other small businesses in the area and get a referral or two. /edit:: typo. as should have been ask/

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