How to account for inventory of used parts

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Zachary Hoyt

Well-known Member

• Feb 5, 2013

• #1

I part out 3 or so tractors each year and I am trying to figure out how to account for them as inventory on a 1040 schedule C form. It specifies that I have to account for starting and ending inventory value for unsold items each year. My problem is that I pay a single payment for the tractor and then sell it in parts over the course of a year or two. This makes it difficult or impossible to say with any accuracy what the value is of the parts I have left as unsold inventory at the end of any given calendar year. I would say realistically I may have between 1-2k in likely eventual selling prices of parts on hand, but that is the aggregate amount, not individual parts. If anyone has any advice I would appreciate it.
Zach

 

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DeltaRed

Well-known Member

• Feb 5, 2013

• #1

I am not a 'tax guy',but I think you are "over analizeing".Just deduct the cost of the machine.List parts sold for taxes.Forget about "inventory"You are a farmer,not a parts house.Your volume is too small.Do the big salvage yards keep "inventory on individual parts?I dont think so.Like I said,I am not a tax guy.I use a professional for my taxes.

 

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Anonymous-0

Well-known Member

• Feb 5, 2013

• #1

Dont know but i would say nothing has value till its sold.
Like this..I have a tractor that is now Worth 12 million dollars but as of yet nobody has bot it from me.. :shock: :shock: :shock: :shock: :shock: :shock: :shock: :shock: :shock: :shock: but im still waiting and hopeful.. :lol: :lol: :lol: :lol: :lol:

 

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John B.

Well-known Member

• Feb 5, 2013

• #1

I agree with Deltared.

Your tax person should be able to advise you on this.

 

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DeltaRed

Well-known Member

• Feb 5, 2013

• #1

This is what I do.I buy an old tractor/implement,I deduct the cost as a business expence. I may later sell part or all.I list as income.It all sets in my bone yard till it is sold/hauled off.No depreciation.No inventory.Keep it simple

 

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rrlund

Well-known Member

• Feb 5, 2013

• #1

Sounds like the guy from a year ago who wanted to know how to expense the cost of raising cattle when he slaughtered one from the herd for his own use every year.

 

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PJH

Well-known Member

• Feb 5, 2013

• #1

HEY - yer talkin' about me!!!

:~)


Paul

 

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PJH

Well-known Member

• Feb 5, 2013

• #1

Randy - there's a looong story behind that feed/slaughter question.

Paul

 

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jbp

Member

• Feb 5, 2013

• #1

Don't they just die? Joe

 

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rrlund

Well-known Member

• Feb 5, 2013

• #1

That's just one story I wouldn't be telling the IRS unless they asked. Then I might point and say "he's burried right out there".

 

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Nebraska Cowman

Well-known Member

• Feb 5, 2013

• #1

That's the way I do it too. Keep It Simple S*****

 

OP

OP

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Zachary Hoyt

Well-known Member

• Feb 5, 2013

• #1

Thank you, that is how I would like to do it. I do not have a professional, maybe I need to get one. I have been reading the forms and instructions and they seem to indicate that if the income is derived from selling things then I need to specify an inventory amount for the beginning and end of each year. I like your way better.
Zach

 

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PJH

Well-known Member

• Feb 5, 2013

• #1

I'm a lucky man! Never been audited. Yet. . .

But I "think" I'm ready, if they ever want to.

 

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DeltaRed

Well-known Member

• Feb 5, 2013

• #1

You are not a 'merchant'.You do not have a sales tax licence.You are a farmer.you have a 'stock' of old tractors/parts/junk for your own use....

 

OP

OP

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Zachary Hoyt

Well-known Member

• Feb 5, 2013

• #1

I actually do pay sales tax and have for years. I used to sell twig furniture at a local farmers market and had to get it at that time, since then whatever I have sold in state including tractor parts I pay 8% on.
Zach

 

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donjr

Well-known Member

• Feb 5, 2013

• #1

I gotta throw this one out. A buddy has a truck repair shop. He routinely would replace a starter or generator or tranny. then have the old one rebuilt and stick it in a cubby area over the shop. Over a few years, it became a spare parts repository for a good bit of stuff.

Enter the revenuer. "You gotta inventory everything, and pay an inventory tax on it every year." Nope. "Either you do, or I'll come back with the police". Bring 'em on....

About a month later, here comes this fool- I'm sorry, Government Man- and two of the biggest State Troopers he could round up. Buddy pointed to a ladder, and said, 'Have at it'. About fifteen minutes up in that attic area, in the middle of July, the G-man came down and asked for a fan. 'Don't have one, go get your inventory done...' About five more minutes passed, and the G-man reappears. "Would you think there is $100,000 worth of parts up there?" Nope- go finish your inventory... Another five miutes, and "Would you settle for $50,000?" Nope- go do your work... About five more minutes, and all three appeared, looking like well done lobsters. They offered $10,000, and my bud then suggested $100. He paid his inventory tax and hasn't been reassessed since.....

 

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Pops1532

Well-known Member

• Feb 5, 2013

• #1

Sales tax is an entirely different issue. In the eyes of the IRS buying tractors to part them out is a business venture. Your best bet is to talk to an accountant.
My wife buys and sells antiques and collectibles. She asked our accountant how to value items for inventory for tax purposes. Specifically items from a box lot at auction. He told her to divide the cost of the box lot by the number of items in the box and access each item with that value.
Your accountant may suggest something similar or he may suggest you deduct the total purchase price the year you buy, and just claim income when you sell. There are probably some tax advantages to figuring it as inventory, but the record keeping may not be worth the hassle.

 

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RN

Well-known Member

• Feb 5, 2013

• #1

your inventory value for used, salvage parts is current market value by weight- Basic scrap metal about $220/ton, cast iron is $330/ton. Many years back a revenuer said a "unlicensed salvage yard" had a million dollars worth of inventory in a preliminary court hearing-- the owner of the salvage yard said "SOLD" give me your bid money, I"ll pay the tax and case closed- get the million dollars worth of parts out by end of week. Judge told prosecuter and agent- sounded about right, case closed quick and court docket cleared, you have a million dollars worth of parts to resell as you said or were you lieing to the court?? Prosecutor statement was something like we may have said something unsupported,yadda, yadda, yadda and judge said something like "60 days in cells contempt sentance for wasting courts time if you don"t have a supported bid after lunch recess. Only bids at that time were as scrap at about $25.00/ton picked up and judge said that seems about right- but that is NOT a million dollar inventory, from volume estimate, guess on weight of maybe 10 tons the value was di minimus for the court to consider as a felony and the defendants initial offer of about $100.00 full tax payment was preferred to 10 days in cells for prosecuter and revenue agent for taking up courts time if they wanted to continue unsupported case. This was in New Jersey?? RN

 

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Mike M

Well-known Member

• Feb 5, 2013

• #1

Aren't you allowed so much dollar value as standard ? If that holds true in your state then just declare a number close to that.

This tax on inventory is a big reason why no one stocks any repair parts anymore !!!! Please remember this next time you go to get something at your dealer and it is not in stock.

 

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RodinNS

Well-known Member

• Feb 5, 2013

• #1

Inventory should be written as a 'realistic', recoverable, value on what you have. I don't think I'd get too exact about it given the nature of what it is. Low ball the amount. If you do better... you do better. No big deal.

Rod

 

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GeneMO

Well-known Member

Location

Pilot Grove, Mo.

• Feb 5, 2013

• #1

Tractor? What tractor?

Work with cash.

Buy the tractor for cash, pay your bills with cash, sell the parts for cash.

Better yet, barter everything.

Problem solved.

Gene

 

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Jason the Red

Member

• Feb 5, 2013

• #1

I wouldn't report anything. Too much disclosure is a bad thing!!!! In Missouri, three tractors a year wouldn't even qualify you as a dealer if you were selling them whole!

 

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Pops1532

Well-known Member

• Feb 5, 2013

• #1

(quoted from post at 02:27:16 02/06/13) I wouldn't report anything. Too much disclosure is a bad thing!!!! In Missouri, three tractors a year wouldn't even qualify you as a dealer if you were selling them whole!

Click to expand...

It doesn't matter if you qualify as a dealer in the state's eyes. The IRS will consider it a business. Their threshold is if there is an endeavor to make money. The up side is since it's clearly a business venture in the eyes of the IRS he's entitled to deduct expenses related to that business endeavor.
He NEEDS to talk to an accountant.

 

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Rick Kr

Well-known Member

• Feb 5, 2013

• #1

My first opinion would be to ignore it. If you want to report it vs. running a small cash sale here and there.

Option 2
Report the purchase of the tractor say $1000, depreciate it, 3 years later "sell" it for $100 scrap, report the $100 on that years taxes. Mission accomplished. Notice the quotes around "sell".

Option 3
Report purchase price, keep complete and detailed records of every part you have sold off the tractor, and receipts, and charge sales tax. Then you can report everything correctly.

After one year of option 3, you will realize your time is more valuable working vs. spending the majority of it being a bookkeeper.

I know you are trying to do the right thing, I think there are bigger things to tackle than a few miscellaneous parts sales here and there.

Rick

 

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greygoat

Well-known Member

• Feb 6, 2013

• #1

Used Parts ?...salvage value!