If I purchased inventory at retail to sell at vendor events and have already received commission, shown on my 1099-Misc. How do I claim this inventory, or do I claim it?

[foothillgirl]

As an independent consultant since July 2015, I have done several vendor events and purchased a good amount of product to have on hand at these events.  I pay full retail up front and receive a commission once a week, so essentially I own the product, just as if I were a customer buying it.  How do I claim these products?  If they are claimed as inventory, when I sell them at an event, will I be taxed again?

[PatriciaV · Accepted solution]

In general, if the merchandise you purchased is for resale, it is considered 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" should be the amount you paid to purchase the items from the company. If you used any products for yourself, you will enter than information as well.

With Inventory, you deduct the Cost of Goods Sold from your sales income for "net income" from sales. (Don't forget to charge sales tax.) You are taxed on the net income.

However, you may ignore inventory completely if your gross receipts were under $1 million. In this case, simply report the purchase of inventory as Materials or Supplies.This simplifies your record-keeping and your tax return. In this case, you expense the inventory when you buy it and pay tax on "gross income" from sales

See IRS Pub 334 Accounting for Inventory under "Qualifying Taxpayer"

Keeping Inventory may match your income and expenses more closely if the sales occur in a different year than you purchased the inventory. However, once you start selling on a regular basis, the difference will work itself out (with purchases and sales in the same year). In either case, you are taxed on net income - the only difference is timing.

If the items you purchased were used for advertising (not resale), you would include the amount you didn't use yourself under Other Common Business Expenses | Advertising. If you had product that was consumed for demonstration purposes, that amount would be entered under Supplies.

[foothillgirl]

So when I sell these products that I have already paid for and received commission on, I need to report the money I receive as income again?  It is not truly income since I already paid  for it.  
I believe this is what some of the other direct sellers like Scentsy & Jamberry are asking for clarification on.  
Example:
I buy and item at $45 out of pocket since we pay full price up front.  I receive 30% commission from the company on that purchase, but my out of pocket expense for the inventory is $45.  So when I sell the item at a vendor event for $45, I already have commission  as shown and it should be a wash? Yes? No?

[PatriciaV]

Yes, the income you receive when you sell the product is income. What you paid for the product is "cost" and reduces your "net income." The commission you receive reduces your cost for the product, which also increases your net income.
If you buy a product for $45 and receive a $15 commission, the product actually costs you $30. If you then sell it for $50, your net income is $20 ($50 minus $30).
In TurboTax, your product cost is an expense. Commissions are income. And sales are income. For this example, you would report sales of $50, commissions of $15, and expense of <$45>. The sum of these three entries is $20 - your taxable net income.

[lashleyzoo]

why would she report sales of 50 when she stated she sold it for 45?