Inventory & Taxes: Definition & Examples

Instructions:

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question 1 of 3

All of the following are ways to value your inventory that the IRS will accept, EXCEPT _____.

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1. If you sell products whose cost increases over time, which of the following methods will result in a lower taxable income for your business?

2. While the IRS does not require a specific method for accounting for inventory, it does require that certain items be included in the accounting of inventory. Which of the following items must be included?

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About This Quiz & Worksheet

These quiz questions allow you to find out if you know how to maintain an inventory for tax purposes. You must explain how to remain in compliance to IRS rules and regulations.

Quiz & Worksheet Goals

In this quiz/worksheet combo you'll make sure you remember:

  • The items required by the IRS for any inventory method
  • Different ways of inventory valuation that are acceptable to the IRS
  • What is stated by the Uniform Capitalization Rules

Skills Practiced

  • Reading comprehension - ensure that you draw the most important information from the material, such as what time in the year inventory must be valued to meet IRS rules
  • Information recall - access the knowledge you've gained regarding what type of inventory method would work best for products whose cost grows the longer they are held
  • Knowledge application - use your knowledge to answer questions about IRS requirements for inventory accounting and what methods they allow

Additional Learning

To find out more about these accounting methods, read the lesson titled Inventory & Taxes: Definition & Examples. This lesson will include:

  • The difference between FIFO and LIFO
  • IRS requirements for liquid storage valuation
  • The importance of consistency for inventory reporting
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