Canuckbusiness

Start a business, Do your taxes, Save money

What happens with remaining inventory in last year in business?

This was a good question I got from someone recently that I thought others might find useful.

“I ran a small (teeny, tiny) gift basket business (from home). I’m reporting 2012 as my last year in business. What happens with the remaining inventory tax-wise? Any tax ramifications that I should know about?”

You can take care of this in the Cost of Goods sold section (on your T2125 form). Enter your opening inventory (Line 8300) but leave the closing inventory line blank (Line 8500) . That way you get the deduction for the entire amount of your remaining inventory, which is only fair because you had to pay for that inventory in the past.

Also, make sure you zero out any Capital Cost Allowance (CCA) items (computers, furniture, etc) by “disposing” of them for an amount equal to the “UCC at the end of the year”. This makes your “Undepreciated Capital Cost” zero. To do this, go to “Area D” in the capital cost section of the T2125. If you don’t do this and you carry forward your return into next year’s tax software, you may get a CCA deduction showing up on your return somewhere.

Oh, and be sure to check that box “yes” to the question: “Is this your last year of business?”.

Next year, when you do your tax return, just have a quick look to make sure nothing is coming through on Line 135-139 on your tax return. If there is something there, follow it back to the T2125 and zap it! Those old businesses sometimes have a way of hanging around and haunting their owners for years to come.

March 14, 2013 - Posted by | cost of goods sold, Running Your Business, tax, tips | ,

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