AT. 3 Requisitos fiscales especiales para las existencias disponibles al cierre del ejercicio

Existencias disponibles

Inventory on hand at the end of the year includes crops, fiber and other farm products that have been processed for storage or value added products, animals intended for market sales, and nursery items.

Tax Rules for Inventory on Hand

Prior to 2018 the tax rules for inventory were much more complicated. If you need to file returns for years prior to 2018 you will need to use the old rules.

Since 2018, Taxpayers with less than $25 million in gross revenues may choose to use a simplified inventory method called “Non-Incidental Materials and Supplies” or NIMS. Taxpayers may also choose to report inventory on their tax returns using the method they use for their internal accounting or on their CPA-prepared financial statements. 

If a taxpayer does not choose the NIMS inventory method, then by default they have chosen the method they use for internal accounting. If you keep no inventory records of any kind, this is not a problem, but if you keep any kind of inventory records, the IRS could make you pay taxes based on those records. This would usually result in more taxes owed. 

Make a protective NIMS election

A taxpayer chooses NIMS by making a “NIMS election.” 

The NIMS method is generally the simplest and most advantageous method because it allows taxpayers to deduct some inventory-related expenses without keeping detailed records on all inventory costs or specific sales of inventory items.

NIMS is only used for tax purposes. It is not a method that  creates accurate inventory valuation for purposes of managing a business or creating formal financial statements for lenders or others outside of the business. 

A taxpayer chooses the inventory method they will use for their business by filing the tax return the first year the inventory method is used. Whatever method they used - knowingly or unknowingly - on that first return is the method they must use going forward for that business for that type of inventory. A taxpayer may not change accounting methods without IRS approval. Obtaining IRS permission to change accounting methods is a costly and cumbersome process.

A taxpayer may elect the NIMS method (the easiest and most advantageous method) by reporting NIMS inventory on their tax return the first year they have value-added inventory on hand at the end of the year.  This is called a “protective election.” By electing NIMS you protect yourself against the IRS determining your taxable income using another, less favorable, method. 

Making a NIMS election 

1. Determine the direct costs that go into value-added inventory. For NIMS direct costs are supplies and materials you purchased to create or pack the product, or the cost of custom processing/packing.
2. Determine how much value-added product associated with those costs is on-hand at the end of the tax-year (generally midnight on 12/31).
3. Report your costs on the Schedule F as you would without the NIMS election - AND
4. Add a new expense line called “LESS: NIMS INVENTORY ADJUSTMENT” and record the amount calculated in Step 2 as a “NEGATIVE.” This makes it extra clear to you and the IRS that you have made a NIMS election, and it leaves a clear record of the amount of NIMS inventory you did not deduct - and which you may deduct in the following year. 

NIMS only requires you to consider direct costs in inventory. That means only supplies purchased or contract labor associated with custom-packed products. You do not have to include the cost of wages you pay, or any of the overhead associated with your facilities when you calculate NIMS inventory. That means you can deduct those costs in the year they are paid. Most book inventory methods require including these other costs in inventory.

To be very clear on your tax return, you should show the amount of NIMS inventory as a negative expense clearly labeled as NIMS inventory. This reduces total deductions as required, and makes it clear to the IRS (or your future self) that you have made a NIMS election. 

Reporting in years after you first make the NIMS election 

1. Add the prior year negative NIMS inventory adjustment amount to supplies expense—this increases supplies expense by the amount you did not deduct in the prior year. 
2. Repeat steps 1-4 above. 

When you account for NIMS inventory it typically means that you may not take a current year deduction for expenses you paid in the current year. Instead, you deduct those expenses in the following year. 

If you do not account for inventory correctly on your tax return it means that in the first year you have over-deducted, and thus possibly under-paid your taxes. In all of the subsequent years you will both under-deduct and over-deduct. You will under-deduct by the amount you over-deducted in the prior year, and you will over-deduct by the amount that should be deducted in the following year. If your year-end inventory amounts do not fluctuate much, there will be minimal tax effect after the first year. However, if you fail to account for inventory correctly and are unable to show the IRS records of your reasonable inventory calculations, the cost of working with the IRS and correcting your records and your prior tax returns can be greater than the total amount of taxes underpaid. This is why it is safest to make the NIMS election and show a NIMS adjustment each year. 

Talking with your tax professional about NIMS

1. Tell your tax preparer you want to make a NIMS election on your tax return.
2. Describe to them the inventory you have on hand at the end of the tax year. 
3. Let them propose an amount for the NIMS inventory adjustment. 
4. Review the amount and the calculation with them and approve the adjustment. 
5. Ask them to give you the adjusting entry to make on your books. 

If you want to be successful with a value-added business your success will depend on your ability to manage inventory. Managing inventory means knowing the cost of your inventory and knowing how fast (or slow) your inventory sells. NIMS is probably the best tax method for reporting inventory, but it is probably not the best method for actually managing your inventory to maximize profits. 

The USDA Value-Added Producer Grant Program (VAPG) is a cost-reimbursement program intended to help farmers and ranchers establish profitable value-added businesses. One of the things you can do with VAPG funds is pay to design and implement good inventory systems for your internal management purposes and for proper tax reporting. 

Este recurso se basa en materiales elaborados por el Programa de Formación en Fiscalidad Agrícola de la Facultad de Derecho de la Universidad de Arkansas, en el marco de la colaboración «Agricultural Financial, Tax and Asset Protection» (AgFTAP) con el Centro de Educación en Gestión de Riesgos del Sur de la Universidad de Arkansas y otras entidades.