For the past 8 months I have run a business from home , I have a website and have spent most of that time setting it up and purchasing stock and have just begun to advertise, anyway over the 8 months I have spent approx $6,000 on the website and on stock, and have sold a few thousand $ worth of stock. Anyway my question is this, on the tax return do I claim only on the stock I have sold or do I claim on all the stock I purchased during the year?
Thankyou for the answer to this probably obvious question.

Well, as far as claiming "Income".. only what you sold would be claimable as income.

You COULD use those purchases as deductions.

It would be smart to talk to a Tax preparer as mistakes in this area can REALLY cost you later with the IRS.

So you are a licensed stock broker?

quote:

Originally posted by babthrower:
So you are a licensed stock broker?

The question is about 'stock' bought and sold, and I presume she wants to know how to book these transactions. This depends on what she means by 'stock'. If she's buying and selling stock on the stock market, she is essentially acting as her own broker. In that case she just needs to report her net profit or loss on buys and sells.

If she is acting for others, she is acting as a stock broker, and makes her money on commissions, though she may buy and sell stock as well. She must have taken the necessary courses and passed the securities commissions tests to get a license. She's I presume an Australian, but stock marketing is at least monitored by government pretty well all over the world.

She speaks of buying and selling stock. This is an unusual act for a person starting a new business (other than the stock market business). Whose stock would she be buying, except on the stock market? Is she buying and selling as an agent for others? Only licensed stockbrokers are allowed to do this here, as a business.

(Anyone can buy or sell stock they own in a business, of course. Just as if I own a car, I can sell it and buy another. But if I want to open a car dealership, and make a business of selling cars to the public, I must get the appropriate business license and comply with government regulations.)

But it is possible she means that she has bought the stock of some other businesses, and is operating those businesses. (This is quite possible in the .com world; lots of those businesses are really small.) If that is the case, the stocks she purchased are just a balance sheet transaction to record her ownership in her company. But then what stock has she sold?

It is possible she is also talking about livestock!

What's your hunch, Fred?

Babs, my 'hunch' is that 'stock' means the stock of the business e.g if it is a car sales business it's the cars in the showroom, if it's a dress shop it's the dresses on the rails or in the stock room. That is it's literally 'the stock in trade' and part of the assets of the business.

In any case, I doubt whether someone in Melbourne, which I take to be Melbourne, Australia,(are there others ?) would use the word 'stock' for what in British English we call 'shares'. An American would say ' Wal-Mart stock fell two cents on the NYSE today after heavy trading'. We would say 'shares in [a company] fell'. And if so, by the way, the $ are $Australian, not $US In British English we speak of 'stocks and shares'. A stockbroker trades in stock, meaning government stock or loan stock of a company, and shares.

Sounds logical to me, Fred. Wouldn't mind hearing from the horse's mouth, though.

Here in Canada we use the word 'stock' to mean the proprietorship element in a corporation, usually divided into 'shares', so we can show it on the balance sheet as 'shares'. But we could also show an interest owned in another company, that is, a company can have an asset which represents ownership of all or part of another company.

Goods bought for the purpose of resale (as opposed to those that would be 'used up' in the running of the business) we typically call 'inventory'.

Rogers, welcome to AP

The answer is that your profit is calculated by the deducting the cost to you of the item from the price you sold it at. You pay tax on that profit (subject to certain deductions that you are allowed:see below ). That is, you don't take for the cost of all the goods (stock) you bought in the course of the financial year , nor do you take the value of the stock you have in stock at the end of the year either, and deduct that from the value of your sales You only deduct the cost of the stuff you actually sold.

Your accounts will have figures under different headings. A business may have fixed assets e.g a freehold shop

Then it will have 'Current assets'. These include the stock that it has at the accounting date (31st January each year or 5th April or whatever date is chosen) That's why shops have 'stock-taking' to fix the value of whatever goods they have in stock at that date.

The 'turnover' is the 'cost of sales' , that is what the stuff was sold at, less the cost to the business of buying the stuff. So if it has $100,000 sales and the items sold cost it $70,000 it has a gross profit of $30,000. In crude terms , it is taxed on that. I say 'in crude terms' because it is almost certain to have other 'operating expenses'which it incurred in running the business and which it is allowed to deduct from the gross profit, leaving a net profit (or loss ) and it's that which the revenue will use in calculating any tax due.

At the end of your year you have the profit(or loss) calculated and you show, under assets, what other stock you hold at that date .

So, in your case, your basic calculation is simple enough :sales less cost of goods sold.You may be able to deduct some or all of the other expenses in running the business from that figure and arrive at a figure for taxation which is very substantially less.

Tax law obviously varies from country to country. (Not for nothing do companies sometimes shift the their headquarters and their place for taxation from one country to another, as do some rich individuals with themselves). It may be that your jurisdiction is very favourable to new businesses.Surprisingly, in some places it can be an advantage to lose lots of money in your first few years of trading (but that's another matter)

Caveat:It follows that what I've just said might not be the practice in your particular country or state. It is however,standard practice in Britain and my guess is that accountancy practice in such a simple matter is pretty universal.(Interestingly, in Britain, your best and cheapest advice in such matters is often found by asking the Revenue themselves. They keep 'help lines' open for simple questions ).

Yes, if by "stock" you mean the goods you purchase for resale, it is as Sherazi and Fred said.

Imagine you have four columns: Assets, debts, income and expense.
Beside each column is a little space to write a label.

Imagine that when you started the business, you had $1000 of your own money.

The $1000 goes in the assets column labelled 'Bank"
In the debts column you put $1000, due to yourself, labelled "Rogers".

When you buy the stuff you plan to sell, it is posted as an asset.
It stays there until it is sold

Say you buy two chairs for resale at $500 each.
Put $1,000 in the Assets column labeled "Stuff for resale"
Take out (subtract) $1,000 in the Assets column labeled " Bank"

Then imagine you sell one chair for $800:

You put the $800 in the 'Income" column.
You put the $800 you received for it 'Assets" column labeled "bank".

Now you have to show that your asset is one chair less:
You subtract $500 from the assets column and label it "stuff for resale to expense".
You add $500 to the expense column and label it "cost of stuff sold"

So at year end, when you do your taxes, you add up each column.

You report as taxable income the total of the 'Income" column minus
the total of the "Expense " column.

Also in the expense column you can put things like internet charges.
They are called operating expenses, and also reduce your taxable income.

So if all the business you did in that entire year was sell one chair,
your books would show:

Assets:
Stuff for resale $500

Income $800
Expense $500
-----
Gross profit: $300

But that's not the taxable amount. From that you subtract operating expenses:

Operating costs:
Internet charges: $100
------
Net profit (taxable) $200

P.S Today I prepared our income tax so all in all I'm pretty well numbered out!