Determining cog on items for taxes

[mommaknows]

I own/owned many things that I have listed and/or sold recently and being a very new Ebay seller want to understand how you all figure COGs for taxes on these type of items. Is there some sort of formula? I am trying to get all my ducks in a row early on. 

Any and all advice would be very much appreciated. 

[inhawaii]

This is how I figure COG.

I go by what I paid for the item.

[mommaknows]

@inhawaii  Of course that makes sense if it was purchased within a reasonable time frame,  but some things I've owned for many years.

Just saying. 

[sin-n-dex]

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@mommaknows wrote:

I own/owned many things that I have listed and/or sold recently and being a very new Ebay seller want to understand how you all figure COGs for taxes on these type of items. Is there some sort of formula? I am trying to get all my ducks in a row early on. 

Any and all advice would be very much appreciated. 

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CoGS (Cost of Goods Sold) is what you pay for an item. So there's no formula to figure out the CoGS, it's based on your actual cost.

In my store some items have a fixed cost (we use guidelines, pay a price for each type of item, other times we figure the selling price should be Xx's the price paid for the item (meaning our cost on those items might be something like 30%).

For stamp collections since I don't figure out the cost on each stamp, I figure out how much I paid for stamp collections and how much I'm selling the organized stamps for, then figure the CoGS is on average X percent of the original selling price.

For jewellery i have a spreadsheet that tracks price per component (so each bead, finding, etc, has a price, things like thread I write off as consumables). On purses I expense the fabric and put the CoGS as zero (paying tax on the full sale price) because I expensed the materials used to make the purse. I can't keep track of how much fabric is used for this piece or that piece, plus there's a fair bit of waste, so it was easier to expense it and just pay tax on 100% of the gross sale (less fees and shipping expenses of course).

C.

[sin-n-dex]

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@mommaknows wrote:

@inhawaii  Of course that makes sense if it was purchased within a reasonable time frame,  but some things I've owned for many years.

Just saying. 

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You can take an educated guess if you don't remember. When you sell things you've had for many years you get into capital gains tax. That's an issue for an accountant.

C.

[mommaknows]

@sin-n-dex 

My question is about things I've owned for maybe 10 to 20 years or more and have no recollection of what was originally paid. 

[mommaknows]

@sin-n-dex 

Thank you. I didn't know if there was something that I was not aware that I  could apply. 

[inhawaii]

Oh, my apologies.

You left that out of your original post.

How do I figure COG on older items you no longer have a receipt for.

[sin-n-dex · Accepted solution]

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@mommaknows wrote:

@sin-n-dex 

My question is about things I've owned for maybe 10 to 20 years or more and have no recollection of what was originally paid. 

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I have a similar issue with stamps (not knowing how much was paid for any particular group of stamps when I buy albums, take them all apart and make collections). I just took a ballpark guess on how much was spent on all the albums and how much I can sell all the stamps for, and figure the cogs as a percentage of the original selling price.

If you have no idea, it means you have no receipts. If IRS requires receipts, you have an issue no matter what value you put. So I would say try to assign a value that's reasonable and won't be questioned (and note how long ago the item was purchased). Unless you have collectibles that appreciate, you are likely selling your items at a loss. Most people who are selling stuff around the house end up taking a loss, so what value you use might not matter so much if you aren't making any money on the sale.

BTW, I'm going through a tax audit on Thursday (with Canada Revenue Agency) and they're scrutinizing our transactions to look for anomalies. We haven't been required to provide receipts unless there's something that's being questioned as to whether or not it's a valid business expense. (This audit is not for my eBay business, I was the bookkeeper working for the LLC when the expenses were incurred and am required to assist in the audit in located receipts and providing records). When we gave the list of our accounts with each transaction by transaction broken down, that satisfied the auditor. You will want to be making a similar spreadsheet of your items (and you can create a spreadsheet from your listings on ebay and fill in details), so you can supply your list of costs if audited.

C.

[mommaknows]

@sin-n-dex 

I appreciate you taking the time to help me out.

[fashunu4eeuh]

Not my area of expertise but in layman's terms— though there is no formula per se—these 4 factors can help to determine a retailer’s COGS: 1) Price to acquire goods, 2) Shipping/Handling, 3)Shrinkage and 4) Storage costs. 

We have always saved every receipt and it goes in the tax box for its accompanying year. Not always the best filing system when searching thru boxes, but it’s worked for me for the most part.

For other items (such as things inherited or gifted), i research the current market price and take a prudent average.

I rely on a CPA to help file my income taxes and they do  calculations related to things like  depreciation or capital gains, if applicable. Good luck to you in your efforts.

[mommaknows]

@fashunu4eeuh 

Thank you for taking the time to respond. It is appreciated. As the saying goes, "knowledge is power."

[fashunu4eeuh]

You are most welcome. it’s a pleasure to help, @mommaknows .

[johnrj1226]

Sold primarily used items - up end  name brand clothing, handbags, wallets and footwear plus other items  went  buy what a  paid for the items and if I didn't  have a receipt (like yard  or estate  sales I went by what Goodwill  standard retail prices were).

No magic formula but a lot of bookkeeping.

[jrkirk]

When we started selling here on eBay many years ago, we started a journal where we initially wrote down each purchase, with price and date bought............and when that became too complex to find an item, we transferred all the data from the hand-written journal to a computer database, which is easily searchable for a price when an item sells. We also maintain a separate database where we record all selling related expenses, which we use to compute actual end of year profit, or loss, annually for taxes. If you don't keep track of what you paid for items, and don't keep track of your expenses, then how do you know whether or not you are making a profit? Most seller here are likely not making a profit, unless their COGS is nearly zero, IMHO. But you need some records to show that to the IRS, if you are audited.