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Inventory purchased as part of sale of a book store

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Level 3

I have a client that purchased a book store.  A large part of the price was for the inventory.  Do I get to use the beginning inventory when calculating COGS (Schedule C-Sole Prop)?   Does anyone know if I can use the purchased inventory as beginning inventory when I am completing the schedule C cost of good sold? Or does my beginning inventory have to be zero because that part of the purchase price is not deductible/considered when calculating cost of goods sold? If I don't use the beginning inventory from the purchase then my inventory at end of the year won't be reflective of what is in the store? So it doesn't look right and it makes a very large difference in the business profit which increases/decreases taxes owed substantially.

 

Thank you!

 
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8 Replies 8
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Level 12

You have a mix of two issues here: "because that part of the purchase price is not deductible/considered when calculating cost of goods sold?"

The Purchase is various assets. Inventory is an Asset and is a "rotating" asset. It needed to be listed in the Buy/Sell for purposes of separated values.

And then, you have a Beginning Asset value for inventory.

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Highlighted
Level 3

thank you qbteachmt!

Unfortunately, the parties involved did not complete a Form 8594.  Is that what you're referring to?

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Level 12

"did not complete a Form 8594"

Then, how do you know this: "A large part of the price was for the inventory."

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Level 3

The client gave me a breakdown of the price he paid:  Inventory, furniture, goodwill.

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Level 15

I would start Inventory at -0-, and put the bulk purchase as part of Purchases.


ex-AllStar
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Level 15

Both  buyer and seller are supposed to file 8594. Use client's numbers on his 8594.


ex-AllStar
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Level 3

that's a good idea.  That way my cost of goods calculation ties out to Form 8594. Thank you.

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Level 15

You're welcome.


ex-AllStar
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