I opened an antique booth in an antique store. I pay a monthly rent and 10% on sales. I have purchased many items for inventory. How do I report this on taxes?

[PatriciaV · Accepted solution]

As an antique dealer, you are a self-employed entrepreneur. All activity related to this business is reported on Schedule C under Wages & Income | Business Items. If you are using TurboTax Online, you will be prompted to upgrade to the Home & Business version.

The merchandise you purchased for resale should be entered under Inventory. If you just started your business this year, your beginning inventory is $0 and the ending inventory is the cost of the products that you still have (did not sell). "Tell Us the Cost of Your Goods" will guide you in determining the value of your ending inventory.

Rent expense and commissions are entered under Business Expenses, along with other costs that may reduce your taxable income from this business. Your net income from this business is subject to Self-Employment Tax.

[Carl]

Just work it through the Business Income & Expenses section of the program and read EVERYTHING on each screen presented to you. Then if you have questions, you can make them more specific. Just asking "how do I report business income" would require the reader to write a book to cover all the possible scenarios you may have. Just work it through. You'll see expense categories for rent, as well as for commissions paid. (That 10% you pay to the owner is basically a type of commission) You can also expect to have to issue the owner a 1099-MISC at tax filing time.
Now if your state taxes personal income, this doubles the knowledge you need to acquire. I would highly suggest you seek professional help for at least your first year. When it comes to taxes and reporting business income/expenses that first year, perfection is not an option. It's a requirement. Doing things wrong in the first year can quite easily get exponentially worse as the years pass. Then when you catch the error (if the IRS doesn't catch it first) the cost of fixing it can quite easily bankrupt a new business before it even gets off the ground.

[AndyK123]

I have a question about inventory. If I am paying taxes on the income i derive from the items i sold, how do i capture the cost of initially purchasing these items that i sold (cost of goods sold/inventory)? This is my first year doing business in the booth and although my beginning inventory for the year was $0, i spend alot of money purchasing items that i sold in 2019. Please help!

[DanielV01]

Inventory cost (as part of Cost of Goods Sold), is determined in the following way:  

Starting Inventory+Inventory Purchases-Inventory Used for Personal Use-Finishing Inventory=Deductible Inventory Cost

You stated you started the year with $0 inventory (first year).  Throughout the year, let's say you purchased $30,000 of inventory items.  You personally used $250 for yourself, (non-deductible as an expense), and finished the year with $4750 of remaining inventory.  The amount of deductible expense is $25000.

Then, the following year, (after ending with $4750 in inventory), you purchase $45250 of additional inventory, $0 personal use, and finish the year with $2000 inventory in stock.  Your deductible inventory cost for that year would be $48,000.

[Carl]

Basically, what you pay for inventory is not deductible until the tax year you actually sell that inventory. Doesn't matter if you purchased it 50 years ago. The section for Inventory/Cost of Goods Sold (COGS) takes care of this for you.

Just understand that for your first year of business, the BOY (Beginning of Year) Inventory value *MUST* be zero, no matter what.  Here's some examples of how COGS works.

BOY Inventory - $0

COGS - $1000 (What *YOU* paid for the inventory you actually sold in the tax year)

EOY Inventory - $4000 (What *YOU* paid for the inventory still in your possession on Dec 31 of the tax year.)

The above indicates that on Jan 1 of the tax year you had $0 inventory. Then you sold $1000 of that inventory leaving an EOY Inventory balance of $4000. So overall in the tax year you purchased $5000 of inventory. You get to deduct the $1000 you paid for the inventory you sold.
2nd year of business:

BOY Inventory - $4000 (this *MUST* match your prior year's EOY inventory balance.)

COGS - $2000 (What "YOU" paid for the inventory sold during the tax year)

EOY Inventory - $3000 (What *YOU* paid for inventory in your possession on Dec 31 of the tax year)

The above indicates you started the year with $4000 of inventory, sold $2000 of inventory and ended the tax year with $3000 of inventory. Simple math indicates that you purchased an additional $1000 of inventory during that tax year, that you did not sell yet.  You only get to deduct $2000 for the inventory you actually sold during the tax year.