How to track cost of inventory for income tax.

[jimbob64us]

  Hi looking for some guidance on best way to track cost of inventory for income tax purpose.  Is their a way to post the the cost of an item, then when it's sold it would merge with eBay's selling cost to give you a net profit after all cost?

[reallynicestamps]

With my books and patterns, I just put a slip of paper inside with the place and date of purchase, and the price.

With stamps, we're usually buying estates or at auction.

Auction is easy since we get receipts. Estates we are giving receipts and have our own copies.

Many of our items, most actually, are stock from our now closed B&M shop, where there was an inventory system that gave all that information when the inventory number was entered . The numbers look like "5gh223", so there is no need to erase them.

My spreadsheets are books I bought at Staples. Some people use computer spreadsheets.

[monica-sells]

I can't speak for everybody, but i am old school and love playing with numbers.....

I keep track of some specific 'bulk purchases' to see how well they do (compartmentalizing)

this is an example of sales from one specific auction buy I made and the resulting sales/costs

It is labor intensive, but it can be configured and be made a bit easier by using ebay report csv downloads as a 'base' or 'template'....

It would still require input as to the costs.....as far as I know, that is not available within the ebay system....

as far as "annual" (Schedule "C" type) reports, in my case I simply add up all my purchases to determine my costs of goods (some people have opening inventory and closing inventory for a specific time period, usually a calendar year, for a true COG number)

The COG is then subtracted from your Gross Sales Number to determine Net Profit...

Then your expenses are deducted/itemized

[tobaccocardyahoo]

How you deal with things depends, in part, by whether you are using cash or accrual accounting.

You need to ask your accountant whether you can use cash accounting, which could allow you to charge all of your inventory purchases against the years sales.

If you are using accrual accounting, a common technique is to take an inventory at year end and value the cost of your inventory.

You calculate cost of goods sold by starting with your beginning inventory, adding purchases and subtracting your end inventory. No need to track cost of individual sales.

Those of us who buy assorted lots of used inventory, get to assign values to the individual items, and tend to assign lower costs to slow moving items.

[dbfolks166mt]

How you deal with things depends, in part, by whether you are using cash or accrual accounting.

You need to ask your accountant whether you can use cash accounting, which could allow you to charge all of your inventory purchases against the years sales. 

     Actually cash accounting depends on the cash flow and it can be complex to keep track of. If you purchase an item on 26 December regardless of how you pay the expense is not going to be recognized until the following year when either the money is actually moved from your account to the sellers account or in the case of a credit card it's when the money moves from your account to the CC which could be up to 30+ days later. 

     Revenues are recognized when the cash is actually deposited into your account not when you sold the item. Same situation if you sold an item on 26 December it would be when the money is actually deposited into your account which most likely would be the next CY. If the funds are placed on hold it is going to cross the CY for sure. 

If you are using accrual accounting, a common technique is to take an inventory at year end and value the cost of your inventory. 

     Actually it is the other way around with accrual accounting expenses are recognized at the time they are incurred and revenue at the time the item is sold regardless of the cash flow.  An expense or a sale on 26 December would be recognized on 26 December. 

You calculate cost of goods sold by starting with your beginning inventory, adding purchases and subtracting your end inventory. No need to track cost of individual sales.

     Another discussion point for/with your accountant. For most sellers there is a small seller exemption when it comes to inventory that does not require you to track inventory. If you do not have do do so avoid it. It can become a complex and cumbersome process. 

Those of us who buy assorted lots of used inventory, get to assign values to the individual items, and tend to assign lower costs to slow moving items.

     The advantage to accrual accounting is I simply recognize the cost of the entire lot at the time of purchase. 

     Once you declare your accounting method on your taxes, done on your schedule C, it is difficult to change. 

[kreeth]

While I don't believe it's possible to post the cost of items to eBay, if you create unique SKUs for each item and use eBay's Custom Label (SKU) field in your listings, you can then tie back to cost information you track elsewhere. We wrote a blog post to show one way of doing it: https://sellerledger.com/ebay-cost-of-goods-sold/

[iamalwaysright]

Hire someone to do it for you

[brightlightbookseller]

I do a similar thing with both the business I work for (BrightLight Books, this account) and my personal eBay selling, though with a few less percentages calculated because I don't personally need those.  We record the purchase price in a custom database system, however, so our info is actually a bit disjointed for now.  For my personal eBay selling, though, it's all in the one spreadsheet.

[gloryglorygifts]

I'm also old school. I use an excel spreadsheet to track everything because there are other things, aside from ebay fees, to consider as far as costs are concerned. I update sales/inventory, and any expenses on it daily and do a month end update with monthly costs (like platform fees, advertising and other subscriptions). Once you plug in all your formulas, it's very easy to see your month end figures. I just hand it all to the accountant at the end of the year.  

There's also products out there that do similar things, like Quickbooks. Also very helpful.