Three Quick Tax Tips for Friday

Tax scams continue to be rampant and the IRS predicts that they will increase as the October 15 deadline gets closer. Scam artists continue to impersonate IRS employees making threatening phone calls. If you receive a phone call from someone claiming to be an IRS agent demanding immediate payment for a tax debt, hang up the phone. The IRS will never call to threaten or demand a payment. Your first contact with the IRS is always a notice or letter that you receive in the mail.

IRS Notice 2018-77 announced per diem rates that are effective October 1, 2018. Taxpayers may use these new rates to substantiate the amount of expenses for lodging, meals and incidental expenses when traveling from home. There are also special rates for the transportation industry. You can find the Notice here: https://www.irs.gov/pub/irs-drop/n-18-77.pdf

We recently gained a client who was planning on offsetting S corporation income with a substantial year-end purchase of inventory. We informed the client that retail inventory is NOT an expense when it is purchased; it is an expense when it is sold. When you buy inventory, you are exchanging a cash asset for an inventory asset; there is no expenses event in the transaction. At the time of the subsequent sale, Sales are recognized as well as a Cost of Goods Sold expense. The Cost of Goods Sold expense decreases your total inventory. The basic equation is Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold.

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