How does inventory affect taxes?

Answer 1

To some extent, this answer depends on where you live, but here are a few answers: - if you possess inventory that you do not expect to be able to sell, it can often be written down/off - if you possess inventory because a customer ordered it but did not make payment, the unpaid account can be written down less the value of the resale on the item - if the inventory has lost value over time (eg. electronics) then you may be able to claim some capital cost allowance (aka depreciation) - obviously, investing in inventory is a business expense and should be noted as such, so that it is likely your tax bill will be far lower in your business's first year(s). Overview:

A solid system of inventory will make it possible to find the perfect balance between stock on hand and stock needed. If you are operating your company with a high inventory then you will most likely be paying more taxes. You can minimize the amount of taxes due each period by implementing a successful inventory management system.