Form 1040 Schedule C Question

[califdreamin2004]

On Form 1040 Schedule C if you are a small seller I understand it is okay to use the cost method and not the accrual method for figuring out COG.  So if that is true you would need to fill out Line 36 Purchases and Line 42 Cost of Goods Sold.  That would be it for Part III.  You would be able to skip doing the Inventory method or Accrual method.  Is this correct?

[onefootflipper1]

I don't actually have the form in front of me, but that sounds exactly like what I do every year. I definitely don't do accrual or keep inventory.

[monica-sells]

and that number goes up to line 4

you are pretty close to spot-on....don't over complicate it

[luckythewinner]

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@califdreamin2004 wrote:

On Form 1040 Schedule C if you are a small seller I understand it is okay to use the cost method and not the accrual method for figuring out COG.  So if that is true you would need to fill out Line 36 Purchases and Line 42 Cost of Goods Sold.  That would be it for Part III.  You would be able to skip doing the Inventory method or Accrual method.  Is this correct?

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Under IRS Publication 334 most eBay sellers can treat inventory  as non-incidental material or supplies. In that case, you would report only the cost either as

• Supplies (line 22)
• Materials and Supplies (line 38)
• Other expenses (line 48)

It does not seem to matter which one you do. 

[califdreamin2004]

So would Line 36 and Line 42 pretty much be the same amount on Schedule C.  Can somebody explain the difference between these two lines.  I watched a utube on it by a CPA and that is what they showed.  I appreciate all replies.  

[tarotfindsandmore]

If you made less than 25 million gross, the cash method is for you.

https://www.journalofaccountancy.com/issues/2019/jan/small-business-tax-accounting-methods.html

[monica-sells]

Keep it simple:

Line 35: 0 (unless you utilized another method previous year (not common))
Line 36: What you paid for inventory
Line 37: Ignore 0
Line 38: Materials and Supplies (not included in expenses only..most people ignore)
Line 39: Ignore
Line 40: =SUM of 35 through 39 (essentially, what you put on Line 36
Line 41: Should be zero as in line 35
Line 42: Should equal Line 40 (since you did not utilize line 41

That number (Line 42) is also entered up above on Line 4

[califdreamin2004]

Thank you for simplifying this for me.  I have another question on inventory.  If you sell a personal item at a loss and didn't make a profit then how do you handle that as far as your inventory goes?  Thanks ahead of time for any help.  

[monica-sells]

I know how I treat that, but you are getting into specifics that a professional should handle.

hint: you can utilize other forms, the idea is to make sure you "claim" the income somewhere...

there are articles about how to treat the "hobby" portion. even using sch c and capital gains

[mam98031]

@califdreamin2004 

What have you done in prior years?  This is important.  IRS doesn't care if you do Cash Accounting or Accrual Account, but they do care that you are consistent from year to year.  This can't be your first time claiming your sales here, what did you do in previous years?

I've done cash accounting since the day I started to sell online.  I find it much easier to expense things as I purchase them either in cash or on my credit card.

[luckythewinner]

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@califdreamin2004 wrote:

Thank you for simplifying this for me.  I have another question on inventory.  If you sell a personal item at a loss and didn't make a profit then how do you handle that as far as your inventory goes?  Thanks ahead of time for any help.  

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If you have documentation of the acquisition cost, you can use that as the cost of goods sold on schedule C, which allows you to use the loss to offset other income. 

If you report the personal item elsewhere, you may not be able to use the loss to offset other income.