Hello,Where to report inventory lost during flood and loss of business? This is for 1065 client. Liquor inventory loss was $150,000.00

Forum|Forum|1 year ago
February 20, 2025
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sjrcpa

Level 15

Is or will there be insurance reimbursement?

Form 4684.

The more I know the more I don’t know.

P

Purvi322Author

Level 3

The Client did not have the flood insurance. The state provide them with $25k in grant. Nothing from the insurance.

qbteachmt

Level 15

"and loss of business?"

Do they have insurance for business interruption?

Loss of business, meaning "lost profit" isn't a deduction. The inventory has a cost, but you can't write off its retail value, unless the retail value is lower than cost.

Don't yell at us; we're volunteers

P

Purvi322Author

Level 3

I informed him the same thing. But he wants to take purchase and loss... wanted to make sure.. before I say firm no.

qbteachmt

Level 15

"he state provide them with $25k in grant."

That's likely taxable.

The loss is his Cost or retail value, whichever is lower. It's COGS, the same if he sold it. He doesn't get to write off lost profit. If I rampaged through the store and broke the stuff, it's the same issue.

We have a long lost participant here who reminds you: You can't write off what you did not write on.

So, pretend a $25,000 purchase of liquor gets destroyed. How much did you lose? $25,000. Maybe it could have sold for $50,000. You didn't lose $50,000 because you never had $50,000. Can you declare $50,000 sales (income) just to write it off as a deduction as loss? Sure, but that nets to 0. You still only have COGS to deduct. Heck, you can declare $500,000 of sales just to write it off. I'm sure that will go over well with the sales tax agency and the liquor tax board.

Don't yell at us; we're volunteers

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