Valuing inventory for tax purposes

[middleclassvaluables]

Hi I am having my taxes done for 2020 and 2021. In 2020 I started selling personal items and that is when I started buying for resale. I thought I did my research and that if you make less than $1 Million in sales you don't have to keep an inventory and you can deduct your inventory as an expense under Supplies and Materials. When I took my records up to H&R  Block she informed me that I needed to come up with COGS from my inventory and I needed to value everything. I have no idea how to do this starting with the mix of my old personal items and then the inventory I bought to sell.

How do I figure my beginning inventory now?

[b86fiero]

Goodwill, Salvation Army and the IRS offer "Fair market Value - value of used goods" charts for tax deduction purposes.

[b86fiero]

reply to online central - Excellent information!!  Thanks for providing it.

[baantiques]

I don't know if this helps anyone, but I buy parts in bulk, usually with no inventory and the only value is what I paid for it all.  It is literally impossible for me to assign a value to each individual piece.   I use the method where I calculate the value of my inventory at the end of each year and the difference from one year to the next is the COGS.   It's all based on the initial cost of the purchase, and for the change in value I use relative volume.  So if I sold 1/4 of the total volume the first year, my COGS is 1/4 the purchase price, and so on until it's gone.

[glasser]

I am not a tax expert. I actually understand the value of older used items to be what you paid for them at the time.  If they sold for less now than you have take a loss. You can't depreciate the value of most items. I also understand that some items could be treated as capital gains. 

In some cases, you only report the gain or loss on the items sold in the year not the value of inventory.

All this is a way of saying you need a qualified tax expert to assess your situation and advise what method is best for your circumstances. If the H and R block person seems clueless fins someone else.

[nickelsanddimes2015]

H&R Block??? You need a regular CPA for taxes. H&R Block does not know everything there is to know about this business at all. Do yourself a favor and find a CPA instead.

[mybigsale]

"Inventory is carried on the books at the actual wholesale or manufactured cost (not the ultimate retail price)"

If sellers pay $10 full retail price at a secondhand store and sell it for the online market value of $20:

How can sellers get the actual wholesale or manufactured cost of the item for tax purposes? 

What happens if the original wholesale or manufactured cost is greater than the selling price?

[kds99]

I agree with those who suggest you get professional help. Otherwise there's a lot of chaff in the air.

[dbfolks166mt]

     To each his own but I simply do not like dragging out the recording of expenses which if you purchased with a credit card are not actually accounted for until you pay the credit card and the funds are taken from your account. That can be 30-45 days after you bought the item. Revenues are the same way they are not recognized until the money actually is in your account. 

     Each has it's advantages but for simplicity accrual is much easier ask any accountant. There is a reason it is the only one GAAP recognizes. But to each their own. 

[d83gtr7]

Now everything is clear as water.

[luckythewinner]

---

@middleclassvaluables wrote:

Hi I am having my taxes done for 2020 and 2021. In 2020 I started selling personal items and that is when I started buying for resale. I thought I did my research and that if you make less than $1 Million in sales you don't have to keep an inventory and you can deduct your inventory as an expense under Supplies and Materials. When I took my records up to H&R  Block she informed me that I needed to come up with COGS from my inventory and I needed to value everything. I have no idea how to do this starting with the mix of my old personal items and then the inventory I bought to sell.

---

If you read IRS publication 334, if your sales are under $27 million you can account for inventory as non-incidental materials and supplies and avoid having to value your inventory. Instead, you simply deduct the cost of goods sold as an expense in the year that the item is sold. 

Treating inventory as non-incidental material or supplies.

If you account for inventories as materials and supplies that are not incidental, you deduct the amounts paid or incurred to acquire or produce the inventoriable items treated as non-incidental materials and supplies in the year in which they are first used or consumed in your operations. Inventory treated as non-incidental materials and supplies is used or consumed in your business in the year you provide the inventory to your customers.

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

[kh-jean]

Hi everyone,

Due to the age of this 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.

Thank you for understanding.