Tax changes simplify inventory. Does it help authors?

January 9th, 2019 → 10:10 am @

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I read that the new tax laws changes passed in 2018 (called the Tax Cut and Jobs Act or TCJA) simplifies inventory tracking for small businesses!

That could be good news for me as an author who hates tracking inventory?

Can authors give up tracking book inventory?

I got all excited because I hate tracking inventory (and I’m an accountant!). Maybe I can deduct all my book purchases when I buy them and not mess with inventory! I was hopeful!

So I dug into the tax law changes passed in 2018, otherwise known as Tax Cut and Jobs Act (TCJA)

From Not Your Dad’s CPA comes this explanation (edited for brevity):

 In a nutshell, the TCJA says that small business taxpayers (basically any business with sales under $25 million) can account for inventory for tax purposes according either following:

1. as non-incidental materials and supplies

OR

2. as conforms to the taxpayer’s method of accounting

 Many people interpret that to mean that if they make less than $1 million in sales they don’t have to track inventory, but that is not the case.

This means that all materials and supplies that are directly used to produce your goods (i.e. an author’s books) must be accounted for:

  1. In the year you provided them as finished goods to customers, or
  2. In the year you originally paid for the material

Whichever is later.

 

In a nutshell: Most authors selling their own books pay for their books before selling them. So authors are required to account for inventory using the accrual method–recognizing the cost of the books when you sell them (#1).

That’s the way it has been so …in the end…nothing changed.

Darn. :(

For my own personal book sales, I have always used, and will continue to use the accrual method for inventory, meaning I track inventory.

That means I count my end of year inventory so I can calculate Cost of Goods Sold on my tax return.

My book  Business Tips and Taxes for Writers   explains all this in more detail. If you sell your own books, it’s worth your time to understand this really important part of your business.

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Carol Topp, CPA

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