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I suspect he misspoke and meant he had to pay higher property tax for the increase in inventory. He shouldn't be paying income tax on inventory unless he did something really odd (got inventory as a gift, accepted it as bartered income for other goods/services).

Inventory is not subject to property tax here in Washington State.

He was upset because I told him inventory was not deductible until sold, so increases in inventory is taxable income.

To make it simple.

He purchased $100.00 of inventory.

Let's say he had a 50% margin, selling price if he sold it all would be $200.00.

Total sales were $150.00 worth.

150 is gross income
75 is cost of goods sold

75 is net income.

He can't deduct the full $100.00 that he paid for the inventory.

What he wanted to do

150.00 gross income
100.00 inventory purchases

50.00 Net income.

But since he only sold 3/4 of his inventory he couldn't deduct the cost of the remainder.

FWIW, I was just stating the corporate rate. I realize, like the top income tax rate, few if any pay tax at that rate. Certainly, none pay all their tax at the top rate, since some of the income is taxed at lower rates.

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