You Make the Call - Sept. 11, 2025

Question: Dennis owns a small window company that buys and installs clients’ windows on an as-needed basis. When clients place their window order, Dennis orders from a window manufacturer and does the installation. He keeps 10 or 20 common-sized windows in his shop during summer to cut down on waiting time when it’s busy. Given that Dennis’s business has annual gross receipts of about $250,000, is he required to count and report his window inventory using one of the standard methods?

Answer: No, Dennis can use the non-inventory incidental materials and supplies method (NIMS) to report his window purchases as an accepted inventory reporting method. He qualifies as a small business under the §448(c) gross receipts test, meeting the ‘under $31 million gross receipts’ threshold (2025).

Since he meets that standard, he may use the §471(c) “exemption for certain small businesses” allowing the use of NIMS when reporting inventory. He will check Box 9iv, NIMS, on Form 1125-A, Cost of Goods Sold, and report beginning or ending inventory only if he has some on-hand, unused, at the end of the year.

That is, if windows came in for a job in late December 2025 but could not be installed until January 2026, the cost of windows would be put into the 2025 ending inventory. In 2026, when they become that year’s beginning inventory, he would move them into purchases to expense upon job completion. His other window purchases are expensed immediately as supplies and materials since they are used immediately; only unused windows need to be counted and reported as inventory.