eBay

wallaceupdike · ‎04-09-2023

Hi,

This past year, I started to sell many items from my personal hobby collections. Many of them sold for much more than I originally paid and I have profit to report. Because I am doing this as a side job and planning to continue to do so for the next couple of years, I am reporting the income as business income. My question is how do I report the "cost of goods sold"? I know the price that I paid for all the items I sold in 2022, but nearly all of them were purchased prior to 2022. I am not reporting a beginning or ending inventory. The only option that I'm seeing that might fit is the "cost of purchases" box on many of the online tax software programs. But I've read that this box is for purchases made during the 2022 tax year. In addition to my cost of goods, I am also deducting shipping, all eBay fees, and shipping supplies from the total reported on my 1099-K. Thanks for any help you can provide!

caldreamer · ‎04-09-2023

This is how my Tax Accountant instructed me (don't know if there are other accounting methods). Determine (cost of goods on hand) Beginning Inventory 1/1/2022 and Ending Inventory 12/31/2022. Determine (cost of goods) for items that sold during the entire year of 2022.

You cannot deduct all your purchases (cost of goods) until the item sells. You should be keeping spreadsheet show all your goods showing (inventory# that you assign, date purchase, cost, date sold). You use the same spreadsheet (year after year) and just keep adding or subtracting inventory (when it sells).

EXAMPLE:

$10,000 BEGINNING INVENTORY (on hand) 1/1/2022

+2,000 Inventory Added During 2022

$12,000 SUBTOTAL

- 5,000 Inventory Sold During 2022

$ 7,000 ENDING INVENTORY (on hand) 12/31/2022

frommichel · ‎04-10-2023

I agree with caldreamer. In addition (pun), you can itemize with more spreadsheet detail by itemizing for each item and adding lines for things like: "shipping cost" "original purchase price" "storage fee" "packing supplies" etc. It is pretty easy once you get into it. If you are not comfortable with spreadsheets, look for a class at a local college or maybe pay for training from someone who uses them. Personally, I recommend Open Office - it is free and does everything that the pay-for-it spreadsheets do. I hope this helps!

luckythewinner · ‎04-10-2023

@wallaceupdike wrote:
Hi,
This past year, I started to sell many items from my personal hobby collections. Many of them sold for much more than I originally paid and I have profit to report. Because I am doing this as a side job and planning to continue to do so for the next couple of years, I am reporting the income as business income. My question is how do I report the "cost of goods sold"? I know the price that I paid for all the items I sold in 2022, but nearly all of them were purchased prior to 2022. I am not reporting a beginning or ending inventory. The only option that I'm seeing that might fit is the "cost of purchases" box on many of the online tax software programs. But I've read that this box is for purchases made during the 2022 tax year. In addition to my cost of goods, I am also deducting shipping, all eBay fees, and shipping supplies from the total reported on my 1099-K. Thanks for any help you can provide!

IMHO you need to read the IRS publication 334 and the section about treating inventory as Treating inventory as non-incidental material or supplies on page 15. Essentially, this allows you to expense the cost of items sold in 2022 in tax year 2022 regardless of when they were purchased.

https://www.irs.gov/pub/irs-pdf/p334.pdf

This eliminates the need to report inventory as caldreamer is discussing.

dbfolks166mt · ‎04-10-2023

In addition to the IRS reference luckythewinner provided you should read through the IRS 538 publication.

https://www.irs.gov/pub/irs-pdf/p538.pdf

This covers the accounting methods you can use and will have to declare on your schedule C. Once you declare it becomes difficult to change. Most use either accrual or cash accounting methods. Both have their advantages and disadvantages but accrual tends to be easier from a book keeping perspective since expenses and revenues are recognized at the time they occur and are not based on the cash flow.

The publication also covers the IRS small business inventory exception. Unless you have a LOT of inventory you probably qualify for the exemption and do not have to declare inventory. If you qualify use the exemption. Inventory is/can become a book keeping burden. Fear not at some point the IRS will get the taxes due on whatever you sell.

As always there are details that none of us on the forum know about your business and probably not information you want to put on a public forum. Recommend you talk to an accountant or tax professional on what works best for your situation.

wallaceupdike · ‎04-29-2023

Thank you for all of the answers and the links to the IRS publications! I was able to learn about some new things that apply to my particular situation. Thanks!