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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 & 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. 

Sales vs. Use Tax & Recording Inventory 

As a retailer, your business buys inventory from wholesalers tax-free. But when that inventory gets sold to the end customer, sales tax applies (depending on state laws). If you decide to take a taxable item for personal use without purchasing it, you’re now responsible for filing and paying use tax on that item. Use tax is a way for states to collect tax on items bought out of state or from wholesalers for personal use.

However, if you simply purchase the item from your store and pay sales tax, it makes it easier because you’re already used to filing sales tax returns. This keeps everything consistent and avoids the complication of filing use tax separately.

Recording Inventory for Tax Purposes

When you’re calculating your cost of goods sold (COGS) on your tax return, it is expected that you back out any inventory that was taken for personal use. This means you’d need to track those items carefully throughout the year, which can be a headache. However, if you buy the items at cost and log it as a normal transaction, there’s no need for extra tracking.

Since you’ve “purchased” the inventory, your business can deduct the full cost of that inventory in its expenses, and you don’t have to worry about adjusting your COGS calculation later.

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.

Why Buy Inventory from Your Business When You Own It?

You might be thinking, “If I already own the inventory, why do I have to buy it again?” It’s a fair question. However, the reality is that your business owns the inventory, not you personally. So when you purchase it at cost, you’re simply reimbursing the business. It’s a way to keep your books clean and your taxes in compliance without any extra hassle.

In short, buying your own inventory at cost + tax allows you to keep personal use separate from your business transactions, simplifies your sales tax process, and ensures that your bookkeeping stays organized and accurate!
For help on knowing EXACTLY how to do this in your own bookkeeping using Quickbooks Online, I’d love to invite you to join our Bookkeeping Made Simple for Boutiques community! Click on the link to learn more about how this course & community can help support you and your bookkeeping needs.