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    1 Reply Latest reply on Mar 12, 2009 7:20 AM by LUCKIEST

    Cash vs Accrual Method

    BillyBoy Newbie
      My wife has a small sole proprietor retail jewelry business which sells to the public at conventions, craft shows etc. and was started in 08. Almost all the jewelry sold is made from supplies purchased and the inventory consists of these supplies and the finished product. I thought I wouldn't have to report inventory as sales are certainly under one milliion and I was planning on using the cash accounting method. But it appears from what I have read that any business with inventory or retail type sales must report inventory. Is this an absolut requirement or are there any exceptions or hopefully I am interpreting the requiremtnt incorrectly. I would certainly appreciate any advice on this matter. Thank you.
        • Re: Cash vs Accrual Method
          LUCKIEST Guide
          Cash vs Accrual Method, Welcome

          I think the following will answer your question, from the IRS tax topics number 408:
          "Be aware that Revenue Procedure 2001–10 & Revenue Procedure
          2002–28 specifically state when you can deduct the costs for the
          inventoriable items that are being treated as materials and supplies
          that are not incidental within the meaning of Treasury Regulation
          1.162–3. In the case of a cash method taxpayer, the cost for these
          items cannot be deducted until the year in which (1) you sell the items
          or (2) you pay for them, whichever is later."


          So basically the exemption from inventory afforded by the 2 Rev
          Proc's is a lot of BS, because you must still account for your
          inventory. You cannot deduct the expense until you sell the


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