Can I deduct my inventory when I purchase it??
ฝัง
- เผยแพร่เมื่อ 28 พ.ค. 2024
- For the past few years, it seems like the IRS has been flip-flopping on whether or not you can deduct your inventory when you purchase it or if you need to wait until you sell it. In this video I'll tell you all about that ride and where I believe we've landed.
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I need an excedrin.
😂 I promise all the videos won't be like this
😂😂😂😂
Pass the bottle of Excedrin please
I watched this video when I came to the COG worksheet. Thought I was going to cry. My brain exploded and I almost ran from the room when you were explaining accrual. I am relieved that I can use cash method. I'm one of those small sellers who rushes to find receipts during tax time. Thank you!!!
Please do a video on Accrue method as all of us are interested of how to properly declare inventory bought years ago, and what happens with inventory bought this year and how do we declare our expenses ... keep in mind that most of us are new to filling tax and have no prior bookkeeping and years old inventory
This is by far the most direct and understandable explanation of this topic of inventory and taxes - thanks!
Hi Mark, Thanks for great video. Finally, a reward for being too lazy to keep an inventory with costs assigned to each item! I am so happy to know that I can continue to use the inventory cash method, since that is really all I track. I make my money on the buying end (buy low, sell high), and have a very good picture of how my business is doing without the need to track my profit on a per item basis (other than in my head). It was great to meet you at the Reseller Remix!!
Here is my situation with the deducting it when purchased I bought items with specific intent of resale. With being in my first full time year and couple part time years, not everything I have purchased will sell even after long periods of time. After certain amount of time things are thrown away or donated but they cost my business money but didn't specifically sell.
Thank you so much for all of the work you do for us Mark. I don't know where you live, but I want to give you a hug 🤗 & buy you lunch. I started reselling again in 2018 & just rocked the cash method since I'm used to that style from my days of running a by appointment body shop. I've always done my own taxes & try to keep up on this stuff. I've read a lot on this subject & it's very ambiguous to say the least; the IRS packets are just a quagmire of double talk & tautology. My inventory is taking stuff I've bought & chucking it in a storage unit until I sell it, so the cash method is about the only thing I could do IMO. That being said I cringe to think what to do when/if (more likely when), they make me switch to accrual. I'm going to have a lot of inventory costed @ $0 I'd assume 😂.
Always appreciate the informative content. Looking forward to knocking out 2021 taxes!💪🏼
Great to see you are back. Thank you for the info.
You have no idea how much I appreciate this video! I've been trying to figure this exact thing out for SO long but just couldn't wrap my head around it; your video definitely helped a lot (I may have to re-watch once or twice more LOL) and I thank you for taking the time to make it!
This helped clear up my questions. Thank you so much!
So basically if I don't keep a detailed record of my current inventory , I can simply use the cash method. Sounds good to me lol
Looking forward to that beginners course!! Thank you!
Always great videos
Thank You so much for explaining this..
Learning a lot! Thank you for sharing!!
Thank you for the content! Very interested in the course!
Fantastic video, thank you for taking the time to share this as it was very helpful and informative!
THANK YOU for providing such a detailed video! I started reselling in June and it has completely consumed my life! (in a good way) Each month I'm purchasing more inventory as well as selling even more and I was concerned my taxes would be a sh*t show in Febuary 2022. lol This video along with your insight makes me feel a whole lot better!!! Thanks AGAIN!
Hey NYD - Thank you, I now understand. Your explained it perfectly. You answered the question I have been trying to ask Google.
I've been using Mark for 3 years now and I whole heartedly recommend him. I really wished he was local and not so busy now because every cpa around me looks confused when I tell them I sell on ebay.
Spoke to an accountant at H&R and it was a nightmare. Each question I asked about every topic in this video, on top of medical deductions was never answered. Been doing research 5 hours again to find these videos I once viewed when starting reselling last year just to make sure I didn’t forget memory
Finally a video that goes into detail but still very easy to understand. Thank you.
I appreciate the clear, concise presentation. Thank you.
This is exactly what I wanted to know. I am going to watch this video 5 more times to make sure I got it👍Thank you for this 😊🙏
Very helpful. It was intense but by the end I didn’t feel like I had to watch it a second time, but will likely do so in the future when I’m prepping my taxes 💪🏻🙏🏻
Excellent information! Thanks so much!
This is a question I've been trying to have answered for a long time. Absolutely nobody knows this. Nobody but you. Thanks!
Thank you for doing this video!!! 😍😍😍
As a recent grad with an accounting degree I enjoyed this lol... this is what I was leaning towards based off prior knowledge but wanted a pros opinion backed with those hours of research. Thanks!!
This is amazing. Thank You.
Thank you for breaking this down.
Mark - you are the best! I've had anxiety over the last several months trying to find guidance on this topic (especially treating inventory as NIMS and not having a system to count or value inventory) You nailed this on the head and saved my ass during tax season!
Thank you for your video! Much appreciated and yes, a lot of work...thanks Mark
Learned a lot!
THANK YOU!!!!!! I have spent so much time trying to find this exact information and you somehow managed to organize it all into an easy to follow, 15 minute video! Thank you so much for taking the time to post this.
Thank you for this excellent information!
I really needed this video ty ty ty
I needed to hear this explanation. I'm about to binge watch your channel. I understand the way you explain it. Thank you
Haha! I doubted this guy when I heard about him watching Hairy Tornado. I've been a very small reseller for 23 years. Now with the 1099 rules and my pending retirement I need to make plans. Mark seems to care about helping his clients and he shares that caring CPA style here. Most CPA's I've dealt with seemed to just be representing the IRS and not really my interests.
Pretty good video, thanks.
I’m impressed by your analysis. Thank you - and, yes, I will need to watch this video several times. 🧐
Great Video, Mark! Thanks so much!!
I make my products and sell them so I guess I would only use the when sold method. Thanks for the info.
Very helpful!!
It's sad that the IRS agent's tell you to wing it lol. Thanks for your channel it really does shed some light on things :)
I've been trying to figure out which method to do for a while now. Too much conflicting info out there! This is great and helps so much. Thanks!!
When the student is ready the teacher appears! You are really good at breaking this down for us small business resellers. I think i should take your course.
Thanks for doing one heck of a job clarifying this whole mess, Mark. It still seems as if the ice is a bit thin underfoot, but now, for this, my first year, I feel confident in just using the cash method. Next year, things might be different ...
Thanks!
Thank you for your efforts, you made the options so understandable...
Best video I have watched on TH-cam in months.
Seriously much appreciated Philip, I put a lot of time into this one 🙏🏼
Wow just saw this video. Loved the information. Easy to understand. Very informative and loved how you eplained it. Just subscribed
Very helpful video. Loved the clarification - thanks!
This great information. Lots to Digest here. Will watch it again,! 😍 thanks
Thank you so much!! New subscriber 😊
That was awesome. Your explanation was succinct and detailed. I still did not get the exact information I was looking for, but I am far better armed than I was from the other 10, mostly useless, videos I watched.
I think the accrual method is better all the way around and less likely to be audited by the IRS, but I am still not sure if should include all my inventory purchases on the schedule C in the year I purchased them. I will play with my Turbo Tax and see what happens, as I purchased inventory last year, but will not be selling anything until this year and was not sure if it would affect my taxes, via W2 earnings.
Anyway, thanks for all the info. I have subscribed for all your future educational videos.
Thanks for the awesome video! Wanted to ask if your able to record items as you sell (accrual) in your record keeping while using the cash method. Can you assign a per item cost and value your inventory just for your own data (accrual), assuming of course you don't double report those costs twice, or will the IRS consider this double dipping? I would really love a video that covers bundle purchases with internal fees, (bids,handling,shipping,tax) which is why I use the cash method, even though accrual is better to track profits for inventory. Otherwise recording as sold is so much to cross reference/quantify accurately with a 'One size fits all formula,' so time consuming, and then determine ending inventory balance based on variety bundles, etc. So what formula do you use for your auction bundle purchases??? Thanks!
TY. Great video. I feel fairly safe using the cash method, but if I do, how do I account for personal items I list to resell? I understand how to calculate a LCM value, but should I count the value of all I list in one year, or just as they sell? Calculating as they sell makes more sense to me because some of these items might not ever sell, but that seems like mixing methods to me.
So glad I found your channel!
Thank you so much!!!!!
Great content! What line are on Schedule C do I enter my deduction for inventory purchases? Thank you
Just subscribed, very informative videos! And i have a question, using the accrual method if i purchase inventory and i dont sell it till the next year, do i pay taxes on that inventory at the end of the year I bought it or the year i sold it? Thank you!
I am starting quick boods this year & also double entry. I might join you class or group or whatever.
My mind is melting!!
Thank you so much for these informative videos. I just started selling on eBay, and now Poshmark, this year and have been wondering how I handle the items that I have been listing that were either gifts received over the years or items that I have had on hand so long I don't remember if I bought them or if they were gifted. I am listing these items now but don't know how they would figure into the cost averaging method. I saved your free spreadsheet on this topic since I plan to grow this into a business at some point. But how do I handle items that I never bought but plan to sell. I also have some items given to me by my relatives and I give them a percentage of the proceeds that I get from the sale when it sells. So far only sold 1 item so I would like to understand how to handle these in the future so that my books are straight from the beginning rather than playing catchup at some point in the future.
Excellent. Unfortunately I greatly enjoy keeping tabs on my business by tracking inventory value, so I guess I'm stuck continuing with the accrual method - even though I have no partners, investors, potential buyers, etc. that I need to report the inventory to. It's tempting to just "cash in" the current balance of my inventory asset account, but I guess I'll keep trucking along for now.
Mark! You literally saved my business last night! I was crying and told my husband I was going to quit the ebay business. Then I found your video, I understand it so much better now. (Not totally :) But I have been selling for about 4 years now and pretty much using this method but I thought I was doing it WRONG and was going to get in trouble with getting a 1099 now. (I have been claiming my income the whole time) I also buy at garage sales and some retail arbitrage and tracking each item or even an average! OMG not going to happen since I haven't been doing it since the beginning and NO way to catch up and not lose my sanity. I will continue to deduct cost of goods in the year I purchase and keep zero inventory. I am so relieved!! Thank you so MUCH! One QUESTION, while using this method is there still a way to deduct an item or two that I sell from my own home (belongings) that I bought years ago and have taken a loss? Or is that not allowed?
I asked the same question just now! Sorry for the repeat, Mark.
Thank you for this digestible explanation. I'm a very small online reseller
OMG - Thank you for this video. I bet that was hard to film. Great Job, you had to plan that out. The cash method comfused me. I like to know my profit per item. for each & every item.
Amazing. I actually almost slightly understood this 😅
Thank you!!
It makes sense to deduct at time of sale, in my head anyway.
The inventory not sold is considered an asset?
This is exactly the info I’ve been looking for. I just started reselling last month. I had a business for 10 years but it didn’t require inventory. I’d love more specifics! I’m starting out selling personal items too so I’m not sure how to track/count those sales. I am holding onto any receipts I can find for them.
Good to know! I'll see if I can put together a video on personal items 👍🏻
Just found you this is great. I'm starting a full fledged side ebay store and over the years kept a list of all my garage sale finds but everything is such a mess it's hard to keep a proper inventory but this helped a lot. I plan to only write off when a item sells so I guess inventory accrual method is best. I also want to know what to do when I throw in a personal item for sale that would obviously be a loss usually.
@@notyourdadscpa Please do this...Those of us selling out of our closets here and there need that info
@@TH-bc1ez coming next week stay tuned
@@notyourdadscpa Yes - the things I'm selling are all old stuff I bought many years ago or inherited from my mom when she passed away. I have no receipts for any of it. All vintage stuff or things I just haven't used in a long time.
Wow! This is the clearest and most concise explanation that I have seen. I have a quick question about this. If I decide to use a cash basis for inventory, how to i categorize the inventory expense? Do I just include it under "Supplies" or do I need to create a separate category for it?
I have this question too.
Thanks for all your videos. I understand that you deduct when the item is sold. Are you taxed on the unsold inventory? If I had $100 after expenses and spent $40 on more items to sell, would I be taxed for $100 since the items haven't sold yet?
Great video.
I have a question I'm hoping you can answer soon (I'm a procrastinator for doing my taxes).
If all you do in your electronic files is use the cost of items to figure out what something costs to make (in order to price it), does that constitute keeping an inventory?
I have no idea if I have 10 or 50 of something, but I do know that when purchased, something cost me $1.15 each and I used that to price the item that it goes in to.
Thanks for your help!
So in our books, do our sourced goods have to be categorized as "supplies" in order to do cash method?
For the 11 states that have an inventory tax, I imagine this would preclude them from this method since their books and records for state inventory tax would value their inventory?
Isn't it true that once you start using the acruelle method, that you shouldn't switch to the cash method?
This is so complicated to me. I wish we could only use the total number we have spent on the items we have sold and that's it. Like if I sold 50 items throughout the year and my total cost for all those items was around $200 and all those 50 items sold that would be the only number involved.
If I use GO daddy for bookkeeping and a separate bank account will that disqualify me from the cash method? Thanks
Thanks for the info. Then if using CASH, I'd report the amount spent on inventory where/how on the tax forms?
You would list zero as you're beginning and ending inventory balances, and just list your purchases. That way the ending inventory won't be backed out of the deduction.
I only record inventory costs when I list an item. I have a closet full of items that I have not recorded at all. What method would I use in this case? Any advice on how to better handle my unaccounted for inventory or am I doing fine? Thank you!!
The cash method makes so much more sense. With the accrual method what if you buy inventory that doesn't sell ever? That means you can never write it off because it never sells even though you paid for it? Makes zero logical sense.
I love this video because I am a new reseller and having to address this dilemma this week. So for example, if I bought $100k of merchandise for resell in 2022 and sold $65k of that merchandise in 2022, under the cash method, what numbers would I add (and which line) beginning at Line 35-41? Also where would I place the $65k gross sales of this merchandise? Would the $65k go in the "Gross Receipts" line? I hope you can help! Thanks in advance!
Using the cash method for inventory you would deduct the 100k on the purchases line, listing 0 for beginning and ending inventory.
No worries. Wasn't deep at all. Would actually dig more in depth videos like this, as they are full of great info. 👍
Maybe this is how I have always done it? I keep all sourcing receipts, but the item only goes into a spreadsheet when it SELLS. There, I record the COG, total sold for price, and any shipping/fees. Dunno, I am too dumb to change it. I have an accountant and he works with those numbers. 🤷🏼♀️
I am using MY RESELLER GENIE now. I would love to see you do a video on MRG and how to use it every month to get a look at your business. Especially using the cash method!! I just spent a whole month putting in my purchase price for each item and then I realized OMG I use the cash method for inventory and this is a big waste of time to go in and put in my cost on every single line item… but then how do I really get the best idea on what I made each month.. It is just to time consuming for me to use the accrual method..
I keep meticulous records in a spreadsheet for my purchased inventory and record the date sold and any shipping discount and platform fees to get my net profit. For taxes I count everything I purchased that year and get the difference between what sold. So my first year was a big loss due to unsold inventory and my next year was a big profit since those items now sold and I didn’t purchase a lot of new inventory. So what method am I actually using?? Am I using accrual on my spreadsheet but cash on filing my taxes since I’m taking account of all the items that haven’t sold yet? Now I’m more confused. My cpa never heard of reselling and seemed stressed out and confused initially and had questions for me that I actually had for him! We had to look through the irs documents there on the spot. He was relieved I had meticulous documentation and data and did my taxes how he thought correct but I don’t know which was chosen for me. There was a lot of backtracking and re-doing after I thought it was going smoothly. The next year I just gave him my info and had blind faith. Now I’m nervous 😅
Do you know if retail packaging that my product goes into counts as cost of good sold?
I am so sorry with all the terminology! So can we deduct the inventory as purchase without accounting for physical count and report cogs? And how do you report on schedule c?
Thanks Mark! One question remains though... If I've been using Cash basis all this time and then switch to accrual, wouldn't the IRS consider that to be "double dipping" initially? How is that reconciled?
It would be if you didn't also make an adjustment to prevent the double dipping. In the year of the switch you basically have to back out the deductions you wouldn't have taken under the new method. This is usually done through what's called a section 481 a adjustment 🙂
@@notyourdadscpa Great answer! Thank you!
Ebay's webpage of, total value of inventory and quantity summary, would then force all eBay sellers to use the accrual method??
Can we use accrual accounting but cash inventory
Thanks for this video! If I wanted to make the change to the accrual inventory method from cash, how would I go about that? Form 3115? Would I have to redo past taxes? Thanks!
I have that same concern.
Awesome video and info and clarified a ton for me. I do have one question - how do I successfully and legitimately switch from the cash to the accrual method for my inventory?? I have been selling for the past 10 years or so as a side hustle. I thrift and resell and am OCD so I keep track of each item and it’s cost, but I have always just deducted the cost of the item in the year I purchased it even if it didn’t sell until the next year (and of course did not deduct the cost again). Now I am ramping up this side hustle and I want to switch methods but have no idea HOW to do this. I have no idea what my beginning inventory for 2021 is exactly, do I just make my best guess and then use actual ending for 2021? For older items in my inventory that I have already deducted the cost for last year do I just assign a $0 value? Thanks Mark, I appreciate all the info so much!
You basically have to reduce your 2021 cost of goods sold by any inventory deducted on your taxes in prior years that has not yet sold at the end of 2021, and make sure you list your ending inventory on your Sch C. This is what's knows as a section 481(a) adjustment and typically requires a form 3115...but that might be overkill. The trick is to make sure you are not double deducting anything.
@@notyourdadscpa thanks Mark!
@@notyourdadscpa on question - would that mean that my beginning inventory for 2021 is essentially $0 because all of the inventory up til that point was purchased and deducted in previous years?
Yes that's a correct way to think about it 👍🏻
@@notyourdadscpa awesome thanks!! Glad I was on the right track.
Great video. I'm still confused on one point. What do you put in for inventory at the end of year? If you put in what you have left unsold it still reverts back to the accrual method, does it not?
Correct, so if you are doing cash method you would put zero ending inventory.
Should I have separate bank accounts for types of income (eBay, Amazon, Etsy) or is commingled still clear enough for taxes?
Would immediately expensing inventory items to cost of goods sold account so that you could at least have a reference points and get a good idea as to what your actual inventory constitute using the cash method? or is that too close to actually counting inventory? Would I have to immediately expense inventory items to a non-COGS account type?
How did I switch from accrual to non-accrual?
If we have been recognizing an inventory using the accrual method, can we switch to cash? Doing my 2020 taxes required me to recognize an inventory. How do I get out of the loop of recognizing an inventory to do my taxes properly while stuck in the accrual inventory method. I'm more than happy to stop, but it seems like the IRS could easily argue that if I did my 2020 taxes correctly, I recognized a beginning 2021 inventory.
How do I access the beginners bookkeeping course? Thank you!
So the beginning and ending inventory on your tax return if you are using the cash method would just be 0 correct?
so.. it looks like the way I logically do my books would be weird.. Because I buy collections and am a one person business. I don't even get to count how many items I get in a buy. I do track the individual items I've listed from each buy though, to tell when I have broken even. But I have no Idea what percentage of the buy is listed, one item I haven't looked at might be damaged, and be parted out and turn into 5 listings. and I won't know how many more listings I have until I list the last thing in that buy (I have only done this for 1/4 of my buys this year ) Next year I was only planning on keeping track of the buys that I hadn't broken even on yet. and put everything else in a 'pure profit' category on the spreadsheet.
would this be putting a value on the inventory since I'm tracking what I haven't broken even on? or would this be not since I have no idea how many items make up that ammount I have left to break even?