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Unsold inventory is not taxable income. Unsold inventory is eventually a deductible expense, but its just not deductible until it's sold. Once the inventory is sold, you can claim a deduction for the cost of the inventory.


The dollar value of unsold inventory does not increase income? Am I that far off base?

The original statement was:

I remember the local furnace repair guy being upset because inventory increases were considered income. It was his first year in business. He bought common replacement parts to have on hand for repairs. The part is not an expense until it is sold.

He had very little actual income that first year, since he spent the money increasing his inventory. He had to pay income tax on the money he used to buy the inventory. This is true whether it's a sole proprietorship or a corporation. He ended up having to borrow money to pay the tax bill that year.

Here is a follow up post

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

I know I used the wrong term (net income), but I was trying to make it simple.

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