How do I do Cost of Goods Sold on Schedule C for trading card sole proprietorship?

[DTaylor]

My husband has a sole proprietorship for trading cards. He buys packages of cards (10 cards per package) at wholesale price. He opens the packages and then sells the individual cards that are worth money.

1) How do we calculate the cost of goods sold when only one of the cards inside the package is sold? If a package of 10 cards was bought for $5, would I use $0.50 for the individual card or use $5.00 for the package to calculate cost of goods sold?

2) Under the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, does this mean that we do not need to keep inventory? Therefore, the inventory at beginning of year and at end of year will be "0" on Schedule C?

3) What is the advantage/disadvantage to using the TCJA?

Thank you!

[Carl]

There's nothing to calculate. Your cost of goods sold is what "YOU" paid for the cards that were actually sold in the tax year. It doesn't matter what price you sold the cards for, or in what tax year you purchased the cards.

[DTaylor]

Carl, that did not answer the question that I had asked.

[Carl]

Under the Business tab select "I'll chose what to work on" if offered that.
Then elect to start/update Business Income & Expenses (SCH C)
Elect to Edit your business.
Now you want the fourth item down. The first four items listed are:
Business Profile
Import Business Information
Business Income
Inventory/Cost of Goods Sold <------------You want to work through this one.

[DTaylor]

That still did not answer my question.

[Carl]

"1) How do we calculate the cost of goods sold when only one of the cards inside the package is sold?"
If the package contained 10 cards and you paid $1 for the package, then the cost of that card is 10 cents.
"Under the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, does this mean that we do not need to keep inventory?"
TCJA may or may not have anything to do with your specific and explicit situation. Here's a scenario where I would claim the cost of the cards as a supply expense and just deduct what I paid for those cards, in the tax year I paid for them.
I purchased a box of 100 cards (give or take the exact number of cards) for $100. In the process of working through the box I end up throwing out 30 cards because they're damaged or just plain have no resale value. Of the 70 cards left, I price them for resale anywhere from $5 to $100. During the year I sell 15 cards over the course of the year for a total of $250.
With this scenario I would report the $100 I paid for the cards as an expense, not as inventory. That basically means I get to deduct the entire $100 I paid, in the tax year I paid for those cards.
Then for the cards I sold I'd report as follows in COGS.
BOY Inventory value - $0 (No value here because I already deducted what I paid as an expense)
COGS - $250 (of the 7 or 8 cards I sold, I sold them for a total take of $250 during the tax year.)
EOY Inventory value - $0 (No value here because I already deducted what I paid as an expense)
Now does this better fit your situation? If so, then you're fine reporting what you paid for the cards as an expense and just deducting that cost in full, in the year you purchased the cards. This way you don't have to keep an exact count of cards you purchased, or cards you sold. You only need to track the money, and that's it. Besides, "the money" is all the IRS is interested in anyway.

[DTaylor]

Thank you Carl! That fit exactly the situation we are in.

[DTaylor]

Hello Carl,

We are confused on how you got the COGS to be $250. Wouldn't it be $100, as that is how much you bought the cards for? The $250 was your gross sales. Please advise. Thank you.

[Carl]

Wait. You're almost right. Yet in my last response, I was totally and completely wrong. If you are expensing what you paid for the cards, you will not be using the COGS section "at all".
The $100 was already reported as an expense, in the "Business Expenses" section. then the total of what you sold them for is included in the "Business Income" section. Then income minus expenses equals taxable profit.
My bad! You won't be using COGS at all for this.
I can only blame my oversight (read that, "momentary stupidity") due to lack of sleep the last few days. But I got plenty of sleep last night!