eBay

nextlevelminerals · ‎07-24-2017

I've seen a little bit of debate on the dicussion board regarding how to fill out the Cost of Goods Sold portion of the Schedule C. Some people have said that they simply enter 0 every year for both their starting and ending inventory. I'm looking into starting an ebay business and I'd like to use this method. Is it acceptable and commonly used? I can't for the life of me seem to find any leads or further conversations online beyond one discussion on this forum.

the*dog*ate*my*tablecloth · ‎07-25-2017

I do believe that small businesses are eligible to use the cash method of accounting even if they carry an inventory. The problem is you carry over future revenues without the costs to balance them later.

gramophone-georg · ‎07-25-2017

@the*dog*ate*my*tablecloth wrote:
I do believe that small businesses are eligible to use the cash method of accounting even if they carry an inventory. The problem is you carry over future revenues without the costs to balance them later.

You could very well be correct, which is why the OP really needs a professional opinion on this.

Chaos is NOT an "industry standard".

nextlevelminerals · ‎07-25-2017

@the*dog*ate*my*tablecloth wrote:
You are looking at the form when you should be considering the type of accounting. There is cash accounting and accrual accounting. You choose one or the other and go with it. I use accrual since I carry an inventory every year.

You should investigate how the types of tax accounting work rather than going at it by what goes on the form. There are resources out there offered by the federal government for small sellers.

The difference between cash and accrual accounting isn't really relavant to my question/needs in this instance. I will calculate my expenses as I pay them and my payments as I receive them, therefore I will use the cash accounting method. That's not an issue. My understanding has always been that this is what most strictly-ebay sellers do because the transactions are all instant payments for goods in hand (meaning the payments are never delayed for any reason necessitating the accrual method). Perhaps I am wrong, but I don't see the accrual method and inventory as being inherently aligned to each other. My understanding is that you can carry an inventory with either the cash or accrual method and that the method itself is dependent upon how you receive and calculate your funds, the choice between the two having nothing to do with inventory itself. I could be wrong.

nextlevelminerals · ‎07-25-2017

Perhaps I should give some more context on my unique situation to futher this conversation. Years ago, I invested money into a large amount of collectables. These collectables are a personal collection and amount to many thousands of items. I have receipts for the vast majority of them. I intend to keep some and to sell off many others (and many are as-of-now-undecided). I can get much more than what I paid for most of them.

There are two issues that I see with filing my first Schedule C for this potential business: First, I don't know which items exactly I want to keep and which items I want to sell, therefore I have no idea which ones I should calculate as my inventory (and the inventory would be VAST). Second, I don't want to file my first year's Schedule C and list an ungodly amount of inventory. Something tells me that that wouldn't look right to those reviewing it.

This is why I would like to simply put zeros. I don't know exactly what of the collection is inventory and what is not. I would prefer to simply calculate using this formula: My Sale Price for the Item - The Original Cost - Fees and Expenses for That Individual Item = My Personal Profit. I have setup a spreadsheet which gives me all this info and calculates individual totals for: gross sales, returns, costs, Paypal fees, Ebay fees, shipping, etc. I feel relatively confident that I could fill out the Schedule C with the exception of the inventory.

mmadigan · ‎07-25-2017

If I recall the purpose of the beginning & ending inventory on Schedule C is to allow one to calculate cost of goods. I would think entering zero into beginning & ending and entering the cost of the goods sold (not cost of inventory purchased) into the inventory purchased would produce the number you need for the IRS calculation.

In a year or two if you start buying inventory to resell remember they are not a part of the equation until they sell.

From the article I linked to earlier

At a minimum, keep records of the the purchase date, purchase price, date of sale, and selling price. This will enable you or your accountant to come up with the “cost of goods sold” during the year. Also as others have stated talk to your CPA.

luckythewinner · ‎07-25-2017

@the*dog*ate*my*tablecloth wrote:
I do believe that small businesses are eligible to use the cash method of accounting even if they carry an inventory. The problem is you carry over future revenues without the costs to balance them later.

Publication 334 from the IRS says that a qualifying business can can use cash basis account and treat inventory as "materials and supplies that are not incidental". A qualifying busioness is - generally speaking - one with under $1 million in annual revenue.

This is a fancy way of saying that you expense the cost of goods sold at the time you sell the item, and do not carry an inventory on the books.

I just do this:

- keep my receipts with my physical inventory

- collect the receipts as I sell the items

- add up the receipts at then end of the year and expense the cost of goods sold

- file the receipts away with a copy of the tax return in my records

It takes me about four hours to my taxes each year.

nextlevelminerals · ‎07-25-2017

@luckythewinner wrote:
@the*dog*ate*my*tablecloth wrote:
I do believe that small businesses are eligible to use the cash method of accounting even if they carry an inventory. The problem is you carry over future revenues without the costs to balance them later.
Publication 334 from the IRS says that a qualifying business can can use cash basis account and treat inventory as "materials and supplies that are not incidental". A qualifying busioness is - generally speaking - one with under $1 million in annual revenue.

This is a fancy way of saying that you expense the cost of goods sold at the time you sell the item, and do not carry an inventory on the books.

I just do this:

- keep my receipts with my physical inventory
- collect the receipts as I sell the items
- add up the receipts at then end of the year and expense the cost of goods sold
- file the receipts away with a copy of the tax return in my records

It takes me about four hours to my taxes each year.

Thank you for your reading of the "materials and supplies that are not incidental" clause. I read the 334 document and about it a few different times during my research and I wasn't sure what that clause meant. That get's to the heart of where my research had to stop because I didn't understand.

luckythewinner · ‎07-25-2017

@lorock0 wrote:
Thank you for your reading of the "materials and supplies that are not incidental" clause. I read the 334 document and about it a few different times during my research and I wasn't sure what that clause meant. That get's to the heart of where my research had to stop because I didn't understand.

It took me a while to recognize this part. After that it fell into place:

"If you account for inventoriable items as materials and supplies that are not incidental, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later. "

The key takeaway is that you as the owner effectively have to "front" the cost of your inventory to your business, and you cannot deduct it as an expense until the year that you sell it.

This doesn't work for all businesses, but if you are a typical small-time eBay reseller of used, vintage, garage sale or thrift items, it is probably not an issue.

shevey55 · ‎07-25-2017

I am a tax advisor during the tax season. I just leave the inventory section blank. Most of my items are free, but the ones I pay for I just put the amount in with supplies. Or it can be listed under Other Expenses. That's where I list my fees. Everything may not be on the exact right lines, but I stay consistant year after year and have had no problems.

kh-gary · ‎01-22-2020

Hello Everyone,

Due to the age of the thread, it has been closed to further replies. Please feel free to start a new thread HERE if you wish to continue to discuss this topic.

Thanks for understanding!