Inventory Tracking: What Small Business Owners Need to Know for Accounting, Taxes, and Payroll
- Jamie Aue
- Aug 6
- 3 min read
If you’re running a small business, chances are you’re already juggling a lot—sales, marketing, operations, customer service, and yes, the numbers. One thing that often falls through the cracks? Inventory tracking.
Whether you’re in Nebraska or beyond, if your business sells physical products, keeping tabs on your inventory is more than just a way to stay organized—it has real consequences for your accounting, taxes, and even payroll.
Let’s break it down in simple terms: What does inventory tracking have to do with your bottom line? And what should you know—even if you're not handling it yourself?
1. Inventory and Accounting: The Backbone of Your Financials
Inventory directly impacts your cost of goods sold (COGS)—which affects your profit and loss statement, and ultimately, how you measure your business’s performance.
If your inventory records are off, your financial reports probably are too. And that makes it hard to:
Understand your real profit margins
Set smart pricing
Budget for growth
Working with a good accountant (👋 that’s where we come in) means you’ll have someone to help you correctly account for inventory on the books—even if you’re the one managing the tracking.
Learn more about our accounting services
2. Inventory and Taxes: Don’t Let Mistakes Cost You
According to the IRS inventory rules, inventory must be accounted for as small business income. That means how you track and report it affects how much tax you owe.
Here’s what you need to know:
You must use a consistent method (like FIFO, LIFO, or average cost)
You need a year-end inventory count to properly file taxes
Inaccurate inventory tracking can result in under- or over-reporting your income
Even if you’re not using fancy inventory software, we can help you make sure what you report to the IRS lines up with your records.
3. Inventory and Payroll: Yes, There’s a Connection
You might not think inventory affects payroll—but if your employees are spending time handling stock, counting inventory, or managing shipments, those labor hours matter.
Tracking this can help with:
Proper job costing
Understanding true product costs
Better forecasting for staffing needs
We won’t manage your inventory, but we’ll make sure your payroll systems reflect your workflow, so you’re capturing the full picture of your labor costs.
See how we handle payroll for small businesses
4. What You Can Do About Inventory (Even Without a Big Budget)
You don’t need enterprise software to stay in control. A few simple steps can make a big difference:
Use software that integrates with your accounting system
Do regular inventory counts (monthly or quarterly)
Keep a basic process for receiving and logging products
If you’re not sure where to start, we’re happy to point you in the right direction and make sure the rest—the accounting, taxes, and payroll side—is rock solid.
Have questions? Schedule a free consultation
Bottom Line: Inventory Tracking Isn’t Just an Operations Issue
Inventory touches every corner of your business. Even if you’re not selling thousands of items a week, how you track inventory affects how you pay your taxes, file your books, and manage payroll.
Not sure how to classify expenses? Read our post on small business bookkeeping tips
We may not offer inventory tracking software or services—but we work with small business owners every day to make sure their numbers are right, their taxes are filed cleanly, and their payroll makes sense.
Tools like QuickBooks can help integrate inventory with your books
Have questions about how inventory impacts your financials? Let’s talk. Whether you’re in Nebraska or anywhere else, we’re here to make the numbers side of your business easier—and a whole lot less stressful.
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