Really need some guidance on how to handle this situation. Bear with me here!
Background:
For about 8 years I've had a small sole proprietorship (online shop) that I report on my taxes as a schedule C.
I was advised when I first started to file using the "Cash Method" of accounting and just list my COGS as a misc. expense as I sold them. So for example, if I spent $1,000 on inventory in a given year, I only reported the cost of the items I sold in that year, not the whole $1,000 and if I spent $500 on the items I sold that year I just listed $500 as a misc. expense titled COGS. Again, this is what I was advised when I started filing this Schedule C. Concerned if this was bad advice.
I have started to spend more on inventory and make more in profit so I am questioning my accounting methods and want to make sure I am moving forward properly. It is too late to find a qualified tax professional near me for filing my 2025 taxes but I plan to get one to help me with 2026.
Questions:
- Should I just file for 2025 as I have been and then have a tax professional help me moving forward?
- Is it possible to retroactively go back to claim expenses for cost of goods sold if I ultimately end up changing from the Cash Method to the Accrual Method or will I be leaving money on the table no matter what?
- Any other advice to help me navigate this without it being a total mess or losing too much money?
Really appreciate any help here. I am feeling very stressed about what to do.
