Consequences of making inventory value extremely high for tax savings?

Question

I just noticed.If we paid only $100 for a product (artwork), then after 10 yearsthe probable value is $1000.000 for the same artwork.I could adjust the inventory value to $1000.00 in quickbooks.However if the price paid is $100, quickbooks won't allow me to record $1000.00 for the value in inventory asset, it only records the average price.But, if the value is $1000.00, and the product then depreciates/depletes such as a food product, than in 1 year the depletion expense can easily be the entire value.Eg.  WhiskyWhen you buy the aged whisky its $100, you keep it for an additional 10 years, and the value becomes $1000.  And indeed you can sell it for $1000.00 for sure.  Then you accidentally drop the bottle, so you lose the $1000.00 asset ---> or it depletes 50% per year after the 10th year.Well, this means you can write off, or expense most of the $1000.00.So you paid only $100, and wrote off $1000, or $500 in the 10th year.The inflated depreciation/depletion expense can make you save on taxes.Is this ethical/right or possible ?Some products such as medicine can be purchased in bulk for $1000, however a pharmacist may be able to export some of the medicine to other places where its in super / hyper demand, whereby he can charge 1000% higher prices, thus the inventory value is significantly higher than the cost, but quickbooks wont allow this.? or will it?

Allan Martin · Accepted Answer

I ever there was a poster child for the accounting industry you are it. Get yourself to an accountant as fast as you can.

!-! · Answer

Sometimes Allan Martin has "a way with words".  Do as he advises,consult a competent professional accountant immediately.recordaveragedepreciates/depletesyear.places whereprices, thusquickbooks

Mike Scholl · Answer

The standard accounting rule for inventory is that you value it at the lesser of cost and net realisable value. So you can't revalue items because you could sell them for more than you paid. You can devalue them if you think they won't fetch what you paid for them. This is the most conservative way to value it. So you only make the profit on your whisky IF and WHEN you sell it for $1000

Mike

PS but the guys are right, you need to talk to an accountant

Golden California Girls · Answer

What's that number, 1-800-TAX-FRAUD?uh, oh, what's that, he siad he was going to see an accountant ...damn just lost that 10% reward.

Bamboo Sticks in Gelly · Answer

We don't need dumb answers here.Mike Scholl is the only intelligent person who gets it.Thanks Mike - your reply was useful.

Golden California Girls · Answer

You want answers to a tax question, ask it in a tax group e.g. us.taxes. You want help on how to use QB ask here.

If you don't have a clue about average cost vs. FIFO or LIFO inventory accounting, don't expect answers from a QB users group. Get thy butt to the IRS site and download the publications with the answers to the questions you are asking, or before you really muck it up, see a tax professional.

Allan Martin · Answer

So you are saying that with the exception of Mike the rest of us are dummies.Oh my god, I can't believe I'm on the same side of the fence as The California Girls. Must be letting my guard down.

tina · Answer

I know you have been advised to find an accountnat on this one. It's good advice....

But I know it is easy to reject because you want to have found the solution to scamming the IRS.

This about it this way.....if you were to have the asset at a higher value...to be able to deduct if...then at some point you would have had to ride it up and pay taxes.

It doesn't work that way.

If you actually have had an asset appriciating from 100 to 1000 dollars, and never had to pay taxes on it---then that DEFERRAL OF THE GAIN is the "scam" on the Tax man.

Golden California Girls · Answer

Maybe it got cold in a warm place, and considering Katrina ......

Consequences of making inventory value extremely high for tax savings?

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