I discontinued my LuLaRoe business in 2017. I sent my inventory back in Oct, so my EOY inventory is 0, but I haven't received the refund yet. How do I report that?

[PatriciaV · Accepted solution]

You have two options.

Option One: For this tax year, you write off the inventory at a loss. Next year, you report the refund as business income. 

Option Two: Delay reporting the disposal of your inventory until next year. The refund you receive will offset the loss from writing off the inventory.

As a cash-basis taxpayer, you report income as it is received and expense as they are paid. Although this is a "refund," you would need to report on next year's return because the receipt crossed tax years. But returning the inventory is a non-cash event, so you have a choice on how to report it.

[DB_sunnybeach]

So will the ending inventory be the value of the clothing that was sent back to LuLaRoe if you use option 2?

[PatriciaV]

Yes, if you have no other inventory left.

[DB_sunnybeach]

So if option two is used, will my beginning inventory for 2018 will be the amount of the merchandise sent back?  Where line in Sch C does the amount received by check get  reported?

[DB_sunnybeach]

I guess I don't understand if I purchased the clothing and returned it, how would that count as income?

[PatriciaV]

The refund offsets your original purchase cost. If you receive the refund in the same year as you write off the inventory, it is not income. (There is a place under inventory to enter refunds & credits.) But if you have written off the inventory (received a business deduction) this year, the refund must be reported as income next year.

[DB_sunnybeach]

Makes sense!   I had to look at a Sch. C to see the flow.  Thank you.

[enoch-freeman]

For what it's worth, I'm reporting my inventory as a loss this year. The refunded amount we got in February will be taxable under the new tax laws.

[taylorec1014]

I have this same problem as i started in the sam year as i ended and just recieved my refund check a couple days ago. So would the same options apply?

[PatriciaV]

Yes, if you returned the inventory in one tax year and received the refund in the following tax year, the same options apply.

[jessicatrevinolu]

I received my refund the same year (2017) but I can't find the location to put the refund amount. Where do I input the refund amount?

[jessicatrevinolu]

Would I just say I don't have any inventory to report? Because all my inventory was sent back?

[PatriciaV]

The refund is entered as other business income to offset the cost of inventory you purchased. But if it's a wash (refund for the inventory was exactly what you paid), you may choose to report no inventory and no refund.

[bekandbri]

I hope it's ok if I add on, or inquire further about this question as I am in the same situation. I'm a visual person, so I'd like to use actual numbers if that's ok for option 2.  For 2017, if I had the following BOY-10,000 Purchases - 5,000 EOY-8,000 (the amount that was sent back in 2017), Gross Sales-10,000, my gross profit/income (keeping it simple as there will be expenses) would be 3,000. For 2018, BOY 8,000 Purchases-0 EOY-0 Gross Sales-0 Returns-8,000, it would end up being a "wash" as gross profit would be 0.  Using the same numbers, if I were to go option 1, then I would show a gross profit/loss of -5,000, but in 2018, I'd be using my return of 8,000 and showing it as income (still using schedule c?).  

It seems like option 2 is the better way to go if I'm doing the calculations correctly. I don't know why, but this throws me off every year. Just can not grasp it!  haha. Thanks so much!!