Inventory and other home business questions

[StoppingGo]

I've started scaling up a hobby (selling self-refurbed/repaired/restored goods online). I have a good idea of where to start with regards to taxes, but I have a few more questions. 

1. Inventory. I understand that inventory is to be written off only if it is sold or deemed worthless for selling purposes. But what if something I've bought in 2020 doesn't sell until 2022? Does that go on 2022's taxes or is it a wash if it doesn't sell the same year? Additionally, if I pull inventory but determine it still has some worth and donate it to, say, a Goodwill, should I write it off as inventory, or as a donation? I can't imagine being able to do both. 

2. Home office. I do have an area in my home that's used exclusively for business. However, it's a very small space. Should I even worry about calculating that? I'm actually more interested in calculating internet usage since almost all of my sourcing and selling is online. How should I determine which portion is business? 

3. Seller's certificate. I applied for a Wisconsin seller's certificate. From what I understand, that's only to be used when purchasing goods IN Wisconsin to be sold IN Wisconsin? Since I'm exclusively online currently, is it best to just not bother using it until I either have a physical store or start doing in-person sales? 

4. Pandemic. I've only been doing this as a business in earnest for a little over a month. Is there anything I need to know about the pandemic and my taxes as a business? 

[Critter-3]

If you are new to being self employed, are not incorporated or in a partnership  and  are acting as your own bookkeeper and tax preparer you need to get educated ....  

If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-NEC  for some of your income but you need to report all your income.  So you need to keep your own good records. Here is some reading material……

IRS information on Self Employment….
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center 

Publication 334, Tax Guide for Small Business
http://www.irs.gov/pub/irs-pdf/p334.pdf 

Publication 535 Business Expenses
http://www.irs.gov/pub/irs-pdf/p535.pdf 

Publication 463 Travel, Gift, and Car Expenses

Https://www.irs.gov/pub/irs-pdf/p463.pdf  

Home Office Expenses … Business Use of the Home

https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

https://www.irs.gov/pub/irs-pdf/p587.pdf

Publication 946 … Depreciation

https://www.irs.gov/pub/irs-pdf/p946.pdf

                                              

There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Self Employed return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
http://quickbooks.intuit.com/self-employed

Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C.  You pay 15.3% for 2017 SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040.  The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 line 57.  The SE tax is in addition to your regular income tax on the net profit.
 


PAYING ESTIMATES
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017  SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.

You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits. 
 
- 2. You expect your withholding and credits to be less than the smaller of: 
    90% of the tax to be shown on your current year’s tax return, or 
  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

To prepare estimates for next year, You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.

OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

[MSCO9241]

1)The TCJA language gives you the option to now report your inventory conforming to your method of accounting. So if you use the cash basis and record inventory purchase as an expense you can do so for tax purposes. the TCJA wording specifically states that “the taxpayer’s method of accounting for inventory for such taxable year shall not be treated as failing to clearly reflect income if such method either 1) treats inventory as non-incidental materials and supplies OR 2) conforms to such taxpayer’s method of accounting. The IRS did actually give us some clarifying language in IRS Pub 538, which supports the idea that treating your inventory using the cash method is on the table for small businesses provided that it is in line with your financial accounting treatment, or in layman’s terms, your bookkeeping.https://www.irs.gohttps://www.irs.gov/pub/irs-pdf/p538.pdfv/pub/irs-pdf/p538.pdf   see page 13

2) the HO deduction is up to you. there is a simplified method of $5  /sq ft up to 300 square feet.

3) this is a sales tax question that is usually not answered on this income tax forum.  just a warning.  some states require internet sellers to collect and remit sales tax for in state sales. 

4) about the only pandemic relief would be a PPP loan. 

the other thing you must take into a/c are the hobby loss rules. if you don't make a profit 3 out of 5 years the IRS could come in and deem it a hobby.  the IRS could also challenge if the profit years have only small profits while the loss years have large losses.  if deemed a hobby you gt taxed on your gross income. under current law losses and expenses aren't allowed.