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
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!!!
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 😂.
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
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!
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.
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?
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.
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 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.
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.
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 ...
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!
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.
This is a great video for resellers like me. I actually like to buy at auctions in lots. This becomes very difficult to assign a value to items in the lots based on what I paid for that lot. If I do the cash method and deduct the lot when purchased I can follow your advice. Obviously, I can't track the cost of an item (on paper) to establish a selling price. Currently, in my head, I assign prices to items in a lot and then look to that value to determine minimum selling price. Under your guidance I can buy the lot, deduct the cash cost and then just sell the items as the time passes. Overall I may sell some items for less than I paid for them but it is my experience and expertise that is my reselling business - you can't just buy items at auction and expect to randomly sell them for 100% more than you paid. It just doesn't work that way. Thats why some of us do well on reselling from auctions and others not so well. Thank you again. I also than Hairy Tornado for leading me to you!
We too buy lots. We don't try to figure a cost for each item right out of the gate. We just divide the cost by the number in the lot. We then research/sort the items and the ones worth selling get listed while the rest either get donated or grouped in lots and sold at the local auction house...
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!
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!!
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.
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.
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!
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!
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 💪🏻🙏🏻
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.
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.
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.
Thank god!!! now I fully understand, its a new law thats why many peple dont know. but if are small busienss makes less than 25Mil a year than you can just keep buying more inventroy every year to claim loss in business for a long time?
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..
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?
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?
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?
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!
I dread dealing with tax on eBay sales. When you sell items you own, you generally sell them for less than what you paid. How do you handle that? Technically, you are selling the item at a loss.
Correct, which is why the IRS hasn't historically gone after people who sell a lot of personal items on Ebay and don't report it on their taxes. But in my view they are missing out because if you include that loss on your taxes it will offset other income and reduce your overall tax bill.
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.
You had me at Saul Goodman. Accrual Method it is! Thank you for this excellent video and for all you've done to help so many new small business owners.
Can you give us answer or your opinion if it’s okey for small reselling businesse under 100k a year not to claim any inventory and just keep track of cost of goods and then enter it under material/ supplies cost. Thank you in advance 🙏
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!
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 🙂
Thank for this video, Mark. A quick question: If I do not "keep an inventory" in connection with my reselling activities and am, therefore, arguably able to use the cash method and deduct the cost of inventory when purchased (as opposed to when sold), how do I fill out the Schedule C? As you point out, the form is set up to force the taxpayer to use the accrual method for inventory purposes and deduct the cost of the inventory only when sold (by requiring beginning and ending inventory numbers). Would I simply put $0 as my beginning inventory and the total cost of all inventory purchased during the taxable year as the ending inventory? Thank you!
@@notyourdadscpa Yes thank you, I knew I did not want to keep track of the value of my inventory. But could not figure out how to enter it. Every year I will just put zero as the beginning and ending inventory. As long as I do not change the method this seems reasonable. It does ask to confirm you did not change the method of accounting because then it would get complicated.
I've watched this twice and I'm so so so confused. I've been reselling for about a decade and only in the last year or so have I really stated to make a decent amount of money. I do it part time for fun and also some extra cash, I only make about $15-20k a year reselling, but this just seems like so much more work I'll have to do and potentially less money I'll be making overall =[
So people are being rewarded for not keeping track of what they spend on inventory? How can anyone run a business without knowing what they are paying for inventory? I am so confused. What happens to all the money you're out for items that have not sold yet? The cash method would make way more sense for my business but I'm not sure I can use it? Help! (and thank you!)
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 😅
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!!
What I'm struggling with is "hauls". Let's say I go on a bulk trip, and spend $10 for 10 pieces, making COG for each $1. But when I look through it, half are damaged enough to where I wouldn't be able to sell it, and want to donate it. Do I deduct my COG as $2 each? Or do I have to somehow have an expense for the "wasted" inventory? What about if I end up keeping a piece for myself? Do I average in the cost of that item and just never deduct it either? Gahhh
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!
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?
I've been doing the cash method and writing off inventory as it's purchased not as it's sold. How do I switch over to the other method? What would be my beginning inventory when switching over to this method this year? $0? Thanks!
I do the cash method too but I am not going to change it because it would totally throw off my tax returns compared to previous years at this point. It would look suspicious to the IRS to suddenly switch to accrual.
Hi Mark.. you remind me of my brother who was also a CPA, but who has sadly passed on.. sure miss him.. I have a question about cash method inventory.. at 13:44 there is a statement "if you aren't determining your ending inventory cost balance..., etc" are we not by default determining an ending cost balance on the tax return in some way? My wife and I are now trying to do some of this reselling on the side more seriously.. we want to use the cash method for inventory as it's just a side thing and it's doubtful we will expand the scale beyond a part time endeavor. I would much rather just deduct everything we buy in the year we buy it and claim the sales when they sell. At least that seems simplest right now.. Also, does that mean that making a spreadsheet totaling up inventory purchases for the year and tracking sales will not disqualify anyone from using the cash method for inventory? Thanks for your time and the helpful video!!
Real life stuff like losing someone sure does have a way of making all this tax stuff so silly and insignificant, but then again the better info we have, the more we can make sure we are optimizing and living our lives to the fullest. What I mean is if you're not valing your inventory as a whole on your company records, that it looks like you don't necessarily have to do so on your tax return either, in other words that you could use the cash method for inventory.
@@notyourdadscpa Another thought occurred to me; what if you use this cash method, deduct your inventory in the year you bought it, but then it never sells? How would this be reconciled satisfactorily in the eyes of the IRS? This seems like a great thing for some people (cash method inventory) but it seems like there is a lot of abuse that might happen and therefore I wonder if in a few years this will circle back to bite a lot of folks. Has any further information come to light on this subject that you're aware of? Thanks again for your time..
If it never sold, it would be considered obsolete inventory that you would eventually donate or discard, and the deduction for both already would have been taken care of. You'd only have a problem if you decided to keep the inventory for personal use, then you'd have to back out the original deductions somehow.
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.
