Sch C Inventory Correction

[RayT]

Client's 2012 Schedule C under stated the ending inventory. Can this be corrected on the 2013 Schedule C without filing an Amended 2012? All comments appreciated.

[BOB W]

Must file amended and pay the tax that follows. The higher the inventory, the higher the income.

[Golden Rocket]

Not sure about that

I believe it would depend on the nature of the mistake and amount.

No inventory subject to routine bookkeeping or costing practices is accurate. As the New Year launches, mistakes in the
inventory are discovered from time to time. Extensions in yards instead of feet, cut-off problems, miscounting, etc. Mistakes
can happen in all manner of ways.

The IRS would admittedly not wish for an amended return to be filed every time a mistake is found.

However, a very large error which significantly distorts tax liability - that requires an amended return. But not for casual or
routine bookkeeping errors.

[Roland Slugg]

Technically, I suppose the T/P should file an amended return for any changed/corrected amount. But as a practical matter it depends on the amount. If less than $100, no way. If more than $10,000, definitely. I'd say the do/don't line for your average small business is probably somewhere between $2,000 and $5,000, but some would say it's less or more than that range. Remember, too, that inventory errors automatically reverse/correct themselves the following year.

[BOB W]

Following the statement that inventory "self corrects", that is true. But the original question dealt with making a book entry and no amended return. I say no book entry without an amended return. Self correction only can happen in the following year when the correct ending inventory is used. The problem is, there will be profits from 2 years in one year. How much profits will depend on the size of the error.