My warehouse was broken into some time ago. The police were on scene before I got there and I have video of fifteen to twenty thousand dollars of merchandise being stolen.
I also had a frozen water pipe at one point that caused about $30k of damage.
Customers steal from us weekly via A-to-z claims.
My accountant says none of these losses can be deducted, since the inventory was already deducted when it was purchased. Is this accurate?
Thank you
Get a new accountant.
Write off
Depends on insurance payout but also writeoff
This one is harder to prove
Agreed
I should also add that he’s more than just an accountant - he’s a tax attorney with his own firm, and he’s supposed to be really good.
I’ve brought this up with him several times and he keeps saying the same item can’t be deducted twice. It was deducted as an expense when I bought it so it can’t be deducted a 2nd time.
I don’t really want to refer him to what other sellers have said on the Amazon seller forum, so can anyone provide something concrete to show him?
This is basic accounting 101. When you purchase inventory it becomes your business asset. When your inventory or asset was stolen, then you suffered a financial loss known as a “tax write off”. This means you can deduct the loss or "write off’ the cost of your stolen inventory on your taxes. This loss will reduce the amount of taxes you owe since you did not earn any money on the stolen merchandise.
I am still mystified by what the tax attorney told you and it makes me wonder if you filed a claim with your insurance company to cover your loss of stolen merchandise? If you filed a claim and were compensated for your loss, then you do not have a tax write off.
I wish a business degree was required of people attempting to start an online business because it would avoid confusion and misunderstandings of profits and losses.
Marilyn
The situation is monumentally more complicated than I’ve illustrated, but it seems my accountant is doing this:
So looks like things have been updated since I looked into things, and I’m still doing things the way I’ve always done them (and of course, changing is non-trivial).
But if he’s been using that method, then it does indeed sound like there is no tax write-off, as it’s already been deducted.
Note that I don’t think that precludes insurance claims, which will complicate things.
If you were on cash accounting, that is probably true. If you were on accrual accounting, that is untrue.
Those of us who have been in business long enough did not have the option of using cash accounting. If you used cash accounting all of your inventory was written off the year it was purchased.
This accountant may be a winner. Cash accounting was a big tax reduction method used by many small businesses.
I have debated whether to switch to cash accounting recently, and did not because my avoidable tax liability is low enough that it isn’t worth drawing any extra IRS attention.
There is a checkbox for accounting method on schedule C if you are not incorporated or on your corporate return to identify you accounting method.
My inclination is to believe your accountant is correct.
I think Lake (and your accountant) is correct on this. With Cash accounting, you will have an opening inventory balance for the year, a closing inventory for the year and the amount you paid for inventory throughout the year. It makes no difference how your inventory was used (or damaged), your income is based on what you bought, what you received for that inventory. So if you had $50k in inventory loss over the course of the year, that will be reflected in your beginning/ending/purchased inventory figures. You are essentially getting a write off of that $50k as long as you don’t count it as inventory at the end of the year.
I’m not an accountant either but that is how it was explained to me when I started doing Cash accounting.
Holy ■■■■…. Who is your accountant? Please please please find someone else. Of course these things can be written off.
