Tax Question

[mordecai8614]

If I sell an item Dec 31st, but don't purchase the shipping label until January 1st, what tax year does the shipping charge apply to? Do I apply it to the sale that was made in 2022 or when I purchased the label in 2023?

[monica-sells]

the date on the receipt of the purchase unless you are using accrual method of accounting...

(this is not to be considered official directives, just from my experiences, if it is 'critical' consult a professional)

[nobody*s_perfect]

If you purchase postage in 2023, then that goes on your return for 2023.

[dbfolks166mt]

   As monica-sells noted it depends on the type of accounting you declare on your schedule C. The two most common are accrual and cash, there is also hybrid but. only you would know how you have that setup. 

     If you are using accrual method revenues and expenses are recognized when they are recognized or incurred regardless of the cash flow. So both the revenue and the shipping cost would be on your 2022 return. 

     If you use cash accounting it would depend on when the cash was received or expended. This can become complicated due to processing times especially if you are paying for shipping labels using a credit card where the actual payment of the credit card invoice may not occur until up to 60 days after you purchase the label. 

     As a side note once you declare an accounting method on your schedule C it must stay with that method. While it is possible to change it is complex. 

[714ricki]

If you purchase the shipping label on January 1, 2023, then that shipping cost is part of your 2023 shipping expenses. That is how my accountant has instructed me expense things for my business.

Of course, consult your tax professional for concrete answeres regarding your overall business. 

Good luck & Happy New Year!

[threelittlelambs]

Also, there’s a chance that sale will not be included on your 1099k for 2022 with the weekend/holiday.

[dbfolks166mt]

Also, there’s a chance that sale will not be included on your 1099k for 2022 with the weekend/holiday.

100% correct and this may present some challenges to those whom have not done this before. The gross amount on your 1099 may or may not equate to your personal accounting records due to the difference between what eBay uses for calculating the gross amount and what you calculate the gross income as on your schedule C depending on the type of accounting method you use. 

[dbfolks166mt]

If you purchase the shipping label on January 1, 2023, then that shipping cost is part of your 2023 shipping expenses. That is how my accountant has instructed me expense things for my business.

Of course, consult your tax professional for concrete answeres regarding your overall business. 

Good luck & Happy New Year!

You may want to have your accountant explain in a little more detail. Based on what your account is telling you they are using cost accounting or some hybrid when filling out your schedule C. There are pros and cons to the various type of accounting methods have your account explain those to you. 

[allen1853]

Unless this specific charge was HUGE and throws you into some other tax bracket, the IRS won't care about this one cost. They have better things to do like go after all the people who whined about the $600 threshold for 1099s. 

[simply-the-best-for-you]

@dbfolks166mt  explanation is excellent!  It depends on your chosen Accounting method. 

[dbfolks166mt]

If you purchase postage in 2023, then that goes on your return for 2023.

Not necessarily it is all dependent on the type of accounting the seller has declared on their schedule C. There is a good probability that sellers who have sales in the later part of November and December will have some challenges with where to align the revenue and expenses if they are using cash accounting.