Cash method zero inventory

[grantbt]

Hi, can I select cash method and then NO to the Do You Have Inventory question?? I took in several thousand dollars last year making small handmade electronic kits as my time allowed and I'm doing it again this year.  Like an etsy person kind of.  Or do I have to say YES to the inventory question and then put 0 for the beginning (last year was my first) and 0 for the end (because it's easier and I didn't really have any anyway)?

[Coleen3 · Accepted solution]

You are not required to have inventory. You can select cash and say, "no", to inventory.

If you use cash method and your total average income for the last 3 years was less than $1,000,000 per year, you don't need to use the cost of goods sold section at all.

Instead, you can just write off your merchandise under supplies or miscellaneous expenses when you purchase it. In this case, your merchandise purchase in 2016 would be fully written off then as a business expense. Your 2017 is written off in 2017.

[grantbt]

Thank you. Is there a recommended category for "parts"? From your answer I'm not 100% sure. For me this would be the needle and thread like for the etsy people.

[grantbt]

Sorry, one other followup question if I may, but I can start a new question if preferred.  Do I include returned items in my Income and then deduct the refund under an expense some place? I noticed on the paypal annual summary those items are there, but in the CSV of the completed items for the year they are missing.

[Coleen3]

Just don't include them at all. There should be a "supplies" category.