mam98031 • Volunteer Community Member • Buyer/Seller since 1999
I'm unsure or don't know that what you say is true for "all" sellers. I certainly can buy that some sellers might believe that.
The original cost of an item IS part of COGS.
IDK what difference you are drawing between how you are trying to define Cost to sell vs Cost of Goods sold. While the normal accounting term is COGS, those that prefer Cost to Sell, still have the right idea to gather all the costs they experienced in order to sell an item. While I haven't noticed anyone use Cost to Sell as a way to describe this, it works. While different, it still describes what a seller needs to gather by way of costs.
I never even mentioned that those who are selling off their collectible items they have had for years would be able to consider their costs of travel to obtain the collectable as part of the total cost they could consider the price of that collectable. You are reaching here. If anyone talked about that, I missed it.
Cost of Goods sold is NOT just fees and shipping labels.
As for IRS, they do allow those that didn't save receipts on items they bought long ago and then decided to sell them to estimate the value of that item.
This is a link you have posted before.
https://www.irs.gov/pub/irs-pdf/p551.pdf
This link can help sellers too.
https://blog.taxact.com/reporting-ebay-income-collectible-sales/
@gamersbaystore wrote:You can just estimate the cost of goods sold if its under 1 million dollars, the IRS allows this. If its over 1 million dollars, then you need to retain detailed records that show what you paid for the items you're selling.
On the down side, ebay does vet their sellers, and they will at some point come and demand you cough up receipts for everything you have listed for sale. If you cannot provide receipts, they will close your account. If you haven't encountered this yet, just know its coming.
Would you please provide a link to the IRS rule that supports this. I'd like to learn more about it as I'm sure others would too.
As far as your second paragraph. Ebay would really have to staff up to do that for 18+ million active sellers. Not sure why it would be important to Ebay. What would be the purpose? We don't all sell name brand stuff, which is normally when Ebay will sometimes require a receipt.
COGS is not subjective, it is a definable term. Now some may use it a bit more freely than it was intended, but that does not mean it has multiple definitions. It does have one.
COGS = Cost of Goods Sold
The definition is any cost that can be directly related to the item is a COGS of that item. That is the simple definition.
Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.
Not all costs that can be deducted on the Schedule C are COGS. Schedule C allows for some indirect costs too.
@dbfolks166mt wrote:COGS is not subjective, it is a definable term. Now some may use it a bit more freely than it was intended, but that does not mean it has multiple definitions. It does have one.
COGS = Cost of Goods Sold
The definition is any cost that can be directly related to the item is a COGS of that item. That is the simple definition.
Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.
Not all costs that can be deducted on the Schedule C are COGS. Schedule C allows for some indirect costs too.
I never stated the definition was subjective and I totally agree with you there is only one definition. What is subjective is how and what goes into the COGS reported on the schedule C and what other nuances go with it. The situation you describe with regards to the production of goods generally applies to manufacturing companies. It also means they are reporting inventory and they should be using accrual accounting.
Most sellers on eBay are not making or manufacturing products but are simply selling completed items and most are probably small businesses. You can use accrual accounting, which is much easier to manage, and not report inventory under the small business exemption. This would alter what goes into your COGS but as you noted it does NOT change the definition of COGS.
There is a HUGE difference between what an auto manufacturer factors into the COGS from the initial production of an automobile/truck and what a seller factors into the COGS when they are selling the used automobile/truck 5 years later.
Your statement that inspired by earlier post was "There is NO one correct answer as to what is defined as, or included or not included in COGS." To me you are describing something that is subjective as there is ONE definition of what COGS means. Now some may create their own definition of it, but in accounting the definition remains the same as I previously stated.
How and what goes into COGS, again is not subjective. COGS are the DIRECT costs associated with the product sold. A schedule C has more on it than COGS as there are indirect costs too.
"The situation you describe with regards to the production of goods generally applies to manufacturing companies. It also means they are reporting inventory and they should be using accrual accounting. "
No it isn't limited to manufacturing firms nor does a seller have to report inventory or do accrual Accounting.
I respect that for you, accrual accounting is easier for you and likely many others. For me, I use Cash accounting and I find it worlds easier than accrual accounting. But IRS doesn't care which method is used as long as the seller stays consistent year to year.
COGS are not only for manufacturing companies and YES there is a difference in the costs that someone would apply to their COGS when selling something different. Not everyone has shipping costs, fees, etc, so you are absolutely correct. What COGS is for you will be different than it is for me, mostly because we sell different stuff. All is legit COGS whether or not the company collecting their costs are a manufacturer or not.
The vast majority of time the Sellers that come here are NOT large companies. So I typically don't answer posts with large corporations in mind.
I don't find Cash Accounting. I track my expense and my sales all year long for all the sites I sell on and report the information as is appropriate for the IRS. Thanks for the tutorial, I'm well aware as to how Cash accounting works.
Your background is similar to mine.
