One of the most common questions I get from eBay sellers is how to figure out how much their inventory is worth for their tax return. This is especially true if they bought the item at a garage sale or used it before selling it on eBay.
Make sure you keep all of the receipts for new items you buy for your stock. You might also want to keep a spreadsheet with a description of the item bought, the date, the price, and the shipping costs.
If you buy something at a garage sale or thrift store, the seller may not give you a receipt that lists each item. So, I would suggest that you write down a receipt (carry a small notepad with you when you go to garage sales or thrift stores) while you are still there. Write down what you bought, when, how much you paid, and where you bought it. Ask the person you bought from to sign the receipt you made.
The hardest inventory to value is stuff you used yourself before selling it on eBay, like clothes you bought for your kids that they have since outgrown. Before you put these items up for sale on eBay, you should look into what similar items have sold for on eBay or other auction sites. For tax purposes, the average selling price of similar items you looked into is how much your inventory is worth. If the IRS comes knocking, you should print out your research and put the average selling price on your inventory spreadsheet.
If you clean out your garage and put the items up for sale on eBay, you can't say that you lost money on the sales. The amount you use as your cost basis for inventory that was used for something other than your business can't be more than its fair market value at the time it was changed. You must also be able to prove how much the property cost in the first place. If you can't, you could be denied any basis and have to report the whole amount as gain.
Keep good records. This is the most important thing to remember. If the IRS audits you and you can't show proof of how much you paid for something, they may say that your cost basis is $0, which means you'll have to pay tax on the whole sale price instead of just the profit.
To your financial success,
Kristine McKinley
