July 2024 Managing the Money with Megan Schmitke

How to Handle Inventory Kept for Personal Use

by Megan Schmitke

Have you ever been unboxing the latest inventory for your business and you just HAD to keep something for yourself??

I mean, it’s one of the benefits of owning your own business - getting first dibs on everything!

But, from a bookkeeping and tax perspective, you want to make sure that you are tracking these items appropriately. How do you do that? I’m so glad you asked.

There are a couple different ways you could do it, but in my opinion, this is the simplest…

Anytime you want to keep some inventory for yourself, I want you to actually BUY IT from your store at cost + sales tax (if applicable). And there’s 2 primary reasons why…

First, since you are a retailer, you don’t have to pay sales tax when your BUSINESS buys the items from your wholesaler. However, if that item is a taxable product in your state, the end user is responsible for paying either SALES tax or USE tax on that item.

If you choose to keep a taxable item from your own inventory, without buying it & paying sales tax, you’re now responsible for filing & paying USE tax on that item. And since you’re already filing sales tax, it’s just easier to have it all flow through that.

Second, you are not allowed to deduct the inventory that you withdraw for personal use. There is a spot of the COGS calculation of your tax return to back out the cost of those items. That means you need to track these items separately throughout the year.

But, if you buy them, even just at cost, you don’t have to track them separately, and you can deduct the full cost of that inventory.

Now, I’ve heard the argument, “Well, I’ve already bought the product, why do I have to buy it again?” And I get it - it’s annoying. But in reality, your BUSINESS bought the product. If you’re just buying at cost, you’re simply reimbursing the business for that cost.

If you have any questions on how to do this, feel free to reach out, and I’d be happy to help!