Taxes

[Lee DeRaud]

For you guys that make enough money at this to file a Schedule C:

How do you handle "consumables" like plaques, veneer, acrylic, and finishing supplies? Do you just expense whatever you buy each year or do you have to treat it as inventory?

(My apologies for posting this in multiple forums, but I suspect I'm going to get different answers depending on the type of work being done.)

[Bryan Cowan]

My apologies to for this question, but how much is "enough" for file for a Schedule C? $500, $1000, $2000+? Net or gross?

[Lee DeRaud]

My apologies to for this question, but how much is "enough" for file for a Schedule C? $500, $1000, $2000+? Net or gross?Yeah, I guess I phrased that badly. Technically, it doesn't matter: you can even file Schedule C if you lost money on a business.

The key word is "business". The IRS is a bit ambiguous themselves: in the instructions for C, they say things like "A sporadic activity or hobby does not qualify as a business." and direct you to line 21 of form 1040. That's where you enter miscellaneous income, but the instructions for that don't seem to cover in-between kinds of things like "hobby income". And without doing Schedule C, you're stuck paying taxes on your gross receipts, even if they are pitifully small.

[Mike Null]

I think I'm considering the items you described as plaques etc. as inventory but consumables such as paint, wax, tapes, paper clips, small tools etc. are expensed. At the end of the year I evaluate my inventory and declare it on my tax return.

[Mike Hood]

I usually expense items that are "consumed" in the process of manufacturing. There is an important difference because if you hold over inventory, you should be accounting for that throughout the year and at the end of the year.

If your thought process is that you buy just what you need to get your job done (and maybe some extras to cover breakage, waste, defect, etc), then you'll stay out of that quagmire of inventory.

I've lost money the last two years (great to purchase a laser, dye sub setup and vinyl cutter), but will turn a slight profit this year.

By avoiding Schedule C, you're missing a GREAT opportunity to grow a small business. It's OK to lose money, but you must show the intent to turn a profit, and even better if that is in your 3-5 year plan. My plan was to NOT turn a profit for the first three years, but I'm doing well enough now I want to show a profit to perhaps expand again in a year or two (at the risk of a loss again).

There are some very obvious reason that LOSING money in a small business can be advantageous if you work a day job.

[Joe Pelonio]

My understanding from the accountant was that thing like sheets of acrylic, Rowmark material, wood and so on is materials under "materials and supplies" in the cost of goods section of the form (raw materials). Inventory, as far as the IRS is concerned, is the cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the goods. Since I make nothing until someone orders it and have local suppliers that's next to nothing for me. On the other hand, a trophy shop that stocks hundreds of them, even with no names yet engraved on them would have a lot of inventory. They would also have to count those being worked on but not yet finished. I do expense paint, it's not a raw material but just a consumable like sandpaper.

[Lee DeRaud]

My understanding from the accountant was that thing like sheets of acrylic, Rowmark material, wood and so on is materials under "materials and supplies" in the cost of goods section of the form (raw materials). Inventory, as far as the IRS is concerned, is the cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the goods.You just summed up my confusion: as I read them, your first sentence says "raw materials are not inventory" and your second sentence says "inventory includes raw materials on hand".

[Steve Clardy]

Heres mine...


Lumber and plywood go under Material.

All else, screws, finish, sandpaper, etc, go under Supplies.

I carry no inventory at the end of the year.

Whats left over from jobs that are paid for, for those jobs, I consider extra. Its been paid for once, and taxes paid.