The drive to purge the warehouse, before an inventory is counterproductive. I has lead to extra efforts to JUST IN TIME. It also creates an artificial flight from brick and mortar, and actually having what you desire. As I see it, there is no REAL NEED to tax this way. Warehousing product, could ease the panic of production. And smooth the flow of need for new employees, and overtime etc. What say you?
Well...if you owned a business, and you had $10 million in taxable income, and your corporate taxes might be $3 million, prior to the fiscal inventory, you could purchase $5 million in materials, place them in inventory, and probably not pay any corporate income taxes. Would you rather have $5 million extra in inventory (inventory basically equals cash) or pay $3 million in taxes?
That's not how its done. I recall a HUGE battle with FedEx when they delivered a huge inventory of product EARLY - causing it to be taxed. Here's how it works. A couple days before the tax deadline, a huge purchase of inventory is made. Thus the expensive is deducted from income. HOWEVER, the inventory is NOT yet in stock, so it is not taxable either. The timing is critical. Spend the money, but don't actually have it yet. Taxing inventory is a mistake in my opinion as it prevents large orders of inventory, which is more production and shipping efficient, plus prevents smooth steady operations. Rather, it makes business an annual roller coaster and gambling-like tax game. It also an lead to outright waste. Some years ago Zales jewelery stores realized that had not sold anywhere near as much jewelry over the holidays as expected. The margins on jewelry is HUGE. So they literally hired witnesses and had them and a lawyer and a CPA go out on a boat with boxes full of jewelry throwing it into deep water in the Gulf of Mexico to prove they did NOT have the inventory as a last minute panic thing as they did inventory for taxes and were shocked at how much they have. (I've always wondered if they REALLY did it, or if everyone on the boat ended up with a fabulous personal jewelry box ) Most BIG jewelers keep their inventories in jurisdictions that do NOT tax inventory. One we know probably has $100,000,000 in loose gems in a small rural jewelry store that is about as secure as Fort Knox, though you'd never guess by looking at it.
Not identifying inventory will be a crime. Excessive amounts of inventory is bad business. You can't hide inventory in the ocean...this will be a crime....
You're wrong, of course. Inventory isn't inventory unless i is in inventory. If it has been disposed of before tax day, however disposed of, it is not inventory. If its value is less than what it would cost in taxes, it is only rational to get rid of it.Throw it away. Burn it. Dump it in the ocean. If it has not been received into inventory it isn't inventory.
This is my last post to you on this because you are clueless and refuse to learn. If a company spends $1 million on some materials, the company must identify this expenditure! The company ordered the materials, received the materials, and paid for the materials...therefore the materials MUST exist! IF a company disposes materials, according to tax law and SAP, the company MUST expense this! The company MUST either have the $1 million in cash, or $1 million in inventory, or $1 million in expensed materials! Anything less is illegal, fraud, criminal and a moot point...
