Sunday, March 25, 2007

Inventory

Hi June,

I am a cartoonist who has also become a self-publisher. With the help of your book, Self-employed Tax Solutions, I've been able to make sense of most of my business taxes, but some things remain tricky.

My question: Buying a proof of my books is a necessary expense. The proofs are not always perfect, so I consider any proof not saleable. Yet, they are something that I can keep in my studio to show people, rather than toss them. Where can I deduct the price of the proofs? Do they go under COGS, supplies, or other?

Thanks in advance, John


Hi John,

You have a choice.

You can consider the cost of proofs as production costs when figuring your per book cost. For example:
All production costs for 100 books = $1000. That means cost = $10 per book.
If the proofs cost you another $100, then your total production costs for the saleable books = $1100. So your per book cost = $11.

Or you can include the proof books as part of your inventory. And when you use them for show, treat them the same as you would books that you give away for promotion. For example:
Let's say your cost was as in the above example, $1100. But you got 100 saleable books and and 10 proofs. Then, your cost per book = $10. And every time you use a proof or send out a book with your promo packet your inventory cost = $10 per book .

Inventory is difficult to explain in a short piece. I assumed that, because you used COGS, "cost of goods sold," that you understand a bit about inventory. Hope I was right!

Best,
June

2 comments:

John said...

Thanks, June,
I appreciate the response, and the help!

Another question: Since I give books away for review and 'promotional purposes', could the cost of those books be deducted under advertisement?

I don't mean to quibble, but it is important for me to be as accurate as possible, especially with tax forms.

Thanks again, JOHN :0)

June Walker said...

John,

The books that you give for promotional purposes would be deducted the same way as if they were sold. If the cost of the book were $11 then at year-end your inventory would be $11 less.

Keep in mind that inventory is all about cost, not about what the item sold for.

10 books out of inventory, whether sold or given away for promotion is a $110 cost [10 books times $11 cost].

Got it?

June