QB Issue Resolution:

First, that guidance is a Year Old and no longer applies as written. It doesn’t apply to Retail (Inventory For Sale) and is poorly written.

I think you are confusing a whole bunch of things that do not apply to each other like you are asking.

You are under $10m, so Cash Basis is fine. If you are Already Cash Basis, then you don’t need form 3115 and rev proc 2002-28 doesn’t matter. But since you have inventory for sale, that is called “modified accrual” in that some of the Cash basis and some of the Accrual basis numbers are used on your tax reporting.

Next, let’s examine this comment: “Inventory is my biggest expense”

Exactly! The IRS still requires the “matching principal” in that, when income occurs from sales, the acquisition of that product then is Expense = Matching. Otherwise, Expenses are over-stated for products for sale that are still in stock and not sold yet. Nothing changed here.

That is not Expense while on hand; it is your Invested Value in Goods, which are not expenses if still on hand. That is Value still on hand = asset value.

So, let’s move on to what this means as you are asking:

“you can account for inventoriable items in the same manner as materials and supplies that are not incidental. Under this accounting method, inventory costs for raw materials purchased for use in producing finished goods and merchandise purchased for resale are deductible in the year the finished goods or merchandise are sold (but not before the year you paid for the raw materials or merchandise, if you are also using the cash method).”

“Inventory” and “Inventory For Sales” are NOT synonymous.

Now, let’s grab your sample text:

“Eligible small businesses are essentially service-based but keep inventory, such as a beauty salon that provides hair-cutting services but also sells shampoos and conditioners.”

So, for their “used In House products,” tracked as inventory (perhaps for Ordering Management), can be treated as SUPPLIES Expense instead, when first purchased. A large Motor held for a repair need is a “rotable” part under the new regulation, which is qualified for Expense when purchased under the new rules, even if held on hand as an Inventoried Spare Part, under specific conditions. It used to be held as a Capital Asset and wasn’t expensed ever (depreciated) or at least until Placed in Service.

Your inventory purchased For SALE is Inventory. Period.

For 2014 and 2015 updates, read this and follow their links: https://accountants-community.intuit.com/questions/1073685-extensive-new-irs-guidance-on-repair-regs…

You should stop using the Internet for the specific tax rule guidance that applies to your business operation; find a CPA and go over your details with this person.

Resolution for Issue 'Do i qualify to re-characterize the money I spend on inventory items for resale as expenses for materials and supplies?' available: Yes (Solved).
Source: Intuit Community forum.

Do i qualify to re-characterize the money I spend on inventory items for resale as expenses for materials and supplies?: this issue or error code is a known issue in Quickbooks Online (QBO) and/or Quickbooks. Support for this issue is available either by self-service or paid support options. Experts are available to resolve your Quickbooks issue to ensure minimal downtime and continue running your business. First try to resolve the issue yourself by looking for a resolution described below. If it is a complex issue or you are unable to solve the issue, you may contact us by clicking here or by using other support options.

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