Direct sales - selling inventory I bought

Forum|Forum|3 years ago
April 12, 2023
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How do I account on my taxes for the items I purchase that I intend to sell to customers?

In my direct sales business, we purchase from the company at full price, earn a commission, then sell to customers at same price we originally paid.

For instance, let's say I order four items, using the Buy 3 get one free company promo. That comes to $40 for items, plus $3 tax , plus $4 shipping. I pay $47 to the company I represent, through my replicated website they maintain for me, and receive the four items. The next week they give me a rebate "commission". In this case it would be $10. Then I sell all 4 sets to customers at full price, plus shipping cost, but no tax.

At the end of the year, let's say I purchased a total of $1000 in inventory, got rebate "commissions" of $250, but only sold $500 worth of my inventory. There's a record of my sales because I use Square to send an invoice to my customer. I also have a record of all the inventory I purchase, in the virtual office that my company maintains for me.

To make it a bit more confusing, I have not reported these resales or the inventory I bought , on my taxes, for the past 4 years I have been doing this business.

With all the changes, and app companies reporting the "sales", I need to change the way I do my taxes, otherwise it will look like I am making a profit from my sales, which is actually just "re-sales".

How should I handle this when I do my taxes for 2022?

Vanessa A

Have you ever made money on it? This sounds more like a hobby business instead of a business with the intention of making money. Something like a cosmetic, Tupperware or other similar thing where you buy products and use them then resell what you can.

If this is a bonafide business done with the intention of making a profit and you do make a profit in some years, then you would claim the money you receive as business income and then walk through the business expense section and add the products you buy as inventory. It will ask for a beginning and ending inventory amount. So, if you had items left from 2021, you would put a value on them and enter that as your beginning inventory. Your ending inventory is your beginning inventory plus purchases minus sales.

If this is a hobby, then you would just report the income, you cannot deduct the expenses.

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