(UNITED STATES) — A visa holder’s immigration status determines whether they may work, while tax rules determine how inventory-related income is reported; this guide clarifies what counts as inventory, how it’s valued, and how that affects taxable income.
1) Overview: Visa Status vs. Tax Rules for Inventory
Start with two separate questions. May you do the work? That is controlled by immigration status and work authorization (USCIS rules).
How do you report income and expenses? That is controlled by U.S. tax law (IRS rules). Inventory concepts usually show up when you sell physical products or produce goods for sale.
Think retail, e-commerce, import/export, or manufacturing. If your activity is lawful under your immigration status, inventory tracking feeds directly into your taxable income.
Assume lawful activity for this guide. Keep the lines clear. Immigration permission and tax reporting are related in real life, but they are not the same system.
2) What Qualifies as Inventory and How It Is Valued
For U.S. tax purposes, inventory generally means property you hold for sale to customers in the ordinary course of business, plus the materials and partially finished items tied to those sales.
Inventory matters because most product businesses compute Cost of Goods Sold (COGS) using beginning inventory, purchases and other inventory costs, and ending inventory.
That ending number is not trivia. A higher ending inventory usually means lower COGS and higher taxable income. A lower ending inventory often does the opposite.
Valuation is usually done at the beginning and end of each tax year because COGS is a yearly tax calculation. Many product businesses use an accrual approach for inventory items even when other parts of their books feel “cash-like.”
The key point: inventory is tracked as an asset until sold. Below is a practical way to separate common categories and how they are treated for tax purposes.
- Resale goods (stock in trade) — Merchandise held for sale; typically treated as inventory for retailers and e-commerce sellers.
- Production inputs — Raw materials and components; treated as inventory if they become part of products sold.
- Partially finished items — Work-in-process; common in manufacturing and assembly and treated as inventory.
- Finished goods — Completed products ready for sale; count even if stored off-site.
- Items moving between locations — Goods in transit; often inventory depending on ownership and shipping terms.
- Product-related supplies — Packaging that becomes part of the product sold; may be inventory depending on facts.
- Business-use property — Equipment, tools, furniture; generally not inventory and typically capital assets.
- Financial rights — Notes, accounts receivable; not inventory.
- Office consumables — Paper and general office supplies; usually not inventory unless they become part of goods sold.
- Already sold items — When title has passed to the buyer, the items are not your inventory anymore.
3) Inventory That Is Not Considered Inventory
Misclassification is a common error and can distort COGS and taxable income. Separate these concepts clearly.
- Inventory: Property held for sale, or inputs that become part of what you sell.
- Business-use assets: Property you use to run the business (equipment, computers, shelving); generally not inventory.
- Receivables and intangibles: Amounts customers owe you or contract rights; not inventory.
When non-inventory items get pushed into inventory, you may end up with overstated COGS or messy year-to-year swings. Treating true inventory as “just an expense” can also misstate income.
Either way, inconsistent reporting can draw IRS questions and create avoidable amendments. Accurate classification and consistent treatment are important.
4) Inventory Costing Methods
Once you know what is inventory, the next decision is how you assign costs to those items. The chosen method affects the timing of taxable income, especially when prices change.
- Specific Identification. Use this when you can track the actual cost of each unit sold; common for high-value, unique, or customized items.
- FIFO (First-In, First-Out). Assumes the oldest units are sold first; in rising price periods, FIFO often produces lower COGS and higher taxable income compared to methods that assign newer costs to sales.
- LIFO (Last-In, First-Out). Assumes the newest units are sold first; in rising price periods, LIFO often produces higher COGS and lower taxable income, but it carries stricter compliance expectations and added complexity.
- Consistency expectation. Method choice is not just math. The IRS generally expects consistency year to year, with records supporting quantities, purchase dates, and cost layers.
Tax eligibility changes reporting rules but does not grant immigration work authorization; consult an immigration attorney before engaging in business activity.
5) Cost of Goods Sold (COGS) and What Goes In or Out
COGS is the bridge from gross receipts to gross income. Get COGS wrong and the rest of the return follows it off course.
COGS commonly includes costs tied to acquiring or producing the goods you sell. Typical inclusions are purchase price (net of discounts), freight-in, direct labor used to make the products, manufacturing supplies, and factory overhead allocated on a reasonable basis.
COGS typically does not include selling or general administrative costs. Examples excluded are marketing, sales commissions, administrative salaries, and freight-out (shipping to customers).
Support your numbers with documentation. Keep invoices, shipping bills, and a clear approach for allocating labor and overhead. Clean records make your reporting easier to defend if questions arise.
6) Small Business Taxpayer Exception (Gross Receipts Test) – 2024
Some businesses can use simplified approaches for inventory under the small business taxpayer exception. The point is to reduce burden for eligible taxpayers.
Eligibility is generally based on a multi-year average gross receipts test. For 2024, the threshold is $30 million using the prior three tax years lookback.
If you qualify, U.S. tax law may allow inventory-related simplifications, such as treating certain inventory as non-incidental materials and supplies or following your financial accounting method instead of traditional inventory accounting.
Rules still expect consistency and documentation. Remember: this changes tax reporting; it does not change USCIS work rules.
7) What Counts as Inventory for Tax Purposes (and Off-Site Storage)
Storage location does not decide inventory treatment. Ownership and purpose do. Items in off-site warehouses or third-party fulfillment centers can still be your inventory if you own them and hold them for sale.
Keep contracts, SKU reports, and periodic counts to support ownership and quantities. For goods in transit, timing depends on shipping terms and when ownership transfers; save bills of lading, vendor invoices, and receiving logs.
For consignment arrangements, inventory treatment can turn on who controls the goods and who bears risk of loss. Document the agreement and the flow of proceeds to clarify tax treatment.
8) What Is Not Considered Inventory
Service-heavy businesses often confuse “business costs” with “inventory.” Ask one question: Is it held for sale to customers? If not, it may not be inventory.
- A service expense (labor for providing a service).
- A business-use asset (equipment and furniture).
- An office supply (consumed in operations, not embedded in products).
- A financial item (receivables).
Real estate can also cause confusion. Property used in operations (an office building) is not inventory, while property held for resale by a dealer can be treated differently under specialized rules. Get advice before classifying such property.
9) Planning for Inventory Costs: Practical Examples
Consider two sellers with the same product and similar sales. Seller A uses a method that assigns older, cheaper units to COGS first, which can make taxable income look higher during price increases.
Seller B uses a method that assigns newer, higher-cost units to COGS first, which can make taxable income look lower in the same period. Neither approach creates money; it changes timing.
Documentation is what keeps the method credible. A second example: freight treatment. Freight-in (to get goods to you) is often part of COGS, while freight-out (to ship to customers) is usually a selling expense.
Mixing them can inflate COGS and depress taxable income. If the IRS reclassifies those costs, you could face back tax and penalties.
10) Special Considerations for Visa Holders and International Students
Visa holders often face a higher-risk mismatch: tax filings may show business activity that immigration rules do not allow. Business involvement falls on a spectrum from passive ownership to active management.
Passive ownership or investing may be allowed in many cases. Active management or providing services may be treated as work, which can conflict with visa terms.
Role clarity matters. Being called an “owner” on paper does not prevent activity from being treated as work if you run day-to-day operations. Before engaging in business activity, confirm your visa allows the activity and obtain valid work authorization.
For tax purposes, you also need to know your U.S. tax status. Many nonimmigrants become U.S. tax residents under the substantial presence test if present for at least 31 days in the current year and 183 days over a three-year calculation.
Certain F, J, M, and Q categories may be exempt from counting days for five years. Green card holders are generally treated as tax residents and typically file Form 1040, due April 15.
Immigration status still controls work eligibility, even if you are a tax resident. Confirm both immigration and tax positions separately with qualified professionals.
Before engaging in business activity, confirm visa allows activity and obtain valid work authorization.
11) Planning Ahead: Why This Information Still Matters
Some visa holders are not permitted to operate a business today. Even so, inventory and COGS knowledge helps you plan for a future where you are authorized.
Clean inventory records can support a smoother start when you later launch a lawful venture, easier year-end closes, and more consistent returns. They can also help with better pricing decisions through clearer margins and cash-cycle awareness.
Strong bookkeeping reduces surprises and the risk of inconsistent filings after a status transition. Clear records make transitions and audits less disruptive.
12) Final Note and Disclaimer
Bring the right materials before you act. For immigration review, gather visa documents and a written description of your planned role. For tax review, gather bookkeeping reports, inventory counts, purchase invoices, and shipping records.
Consult a qualified immigration attorney before any business activity that could be treated as work. Consult a qualified tax professional for inventory classification, COGS treatment, and residency questions under IRS rules.
This article is for educational purposes and does not constitute legal or tax advice. Consult qualified immigration and tax professionals for personalized guidance.
