During the holidays, almost every retailer has some type of sale. But why? Today, I’m going to fill you in on a secret that almost no one knows.

Welcome to Leonard Innovation. My name is Justin Leonard. Thank you for tuning in. Now before we get started, I would like to share with everyone a free video training where I break down how I started my business in 1998 with very little money, while serving in the United States Air Force, and grew it to a highly successful enterprise that is still around today. In the video, you will learn about some pretty incredible business strategies that can help you make more money. The training is suggested even if you are not a business owner. Again, this is a free video workshop that anyone serious about starting or growing their business is definitely going to want to see.

Okay, let’s get back to the fascinating reason that pretty much every retailer has a sale during the holidays. Most would assume it’s because the demand goes up, and yes, that has some truth to it. Some would say the reason is because it’s the holidays and the retailers want the boost in revenue. So basically, the retailers are being nice to us because they really want our business at this time of year. That also has some truth to it. But it’s not the reason almost everything goes on sale, usually around the fourth quarter, year after year.

Are you ready for the answer?

First, the reason has almost nothing to do with the fact that it’s Christmas or the holiday season. The reason has to do with the IRS tax code. For businesses that deal in inventory, the IRS treats unsold inventory as money in the bank which has yet to be realized. So, at the end of the year, prudent businesses are trying to eliminate the excess inventory they have on hand so that it decreases their tax burden.

If you think about it, the actual COST of goods to a business is significantly less than the PRICE the retailer will eventually sell it for. The IRS knows this so they treat it as if it were cash. Businesses do not want excess cash/inventory laying around because the IRS will tax you at a higher rate. So the key is to liquidate as much as you can as the year ends so that it decreases the tax burden.

What happens to the money generated from holiday sales? Isn’t that a lateral move?

The money generated from holiday sales can then be used for other purchases or investments that get pushed into the subsequent year’s tax reporting. For example, you can buy more inventory just before the year ends, let’s say 2022, which means you incur a debt for the year. However, let’s assume inventory takes 30-90 days to arrive from overseas. So once the new inventory arrives, it becomes part of the following tax year; in this case 2023. We are strategically going into debt at the last minute, then pushing the realized gain into the following year. And you can also do tons of other things with the revenue generated from holiday sales like make donations, advertising, employee bonuses, purchase equipment, or pay for inevitable expenses in advance.

Once again, I’m Justin Leonard. Now before I sign off, I want to remind everyone to check out my free workshop where I introduce the Leonard Entrepreneur Scale, which assesses varying levels of entrepreneurship based on knowledge and skill. Check it out and see where you rank. Then after you do the self-assessment, I’m going to show you what it takes to elevate your potential as a business owner.

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