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Ok, thank you so much, I read the links, but they don't address my situation. I am 100% an inventory based re-selling business, small business and I use the accrual method/ average cost method. It's my first year of business. Let me re-phrase the question. Buyer paid shipping vs me paying for shipping = in both scenarios the buyer is ACTUALLY paying for the shipping. Free shipping just means I raise the item price and include the shipping costs into the sale price, so it only LOOKS like I paid for it.

 

Buyer paid shipping (what I use), means the customer pays me for the shipping. However, on Mercari, customer pays for the label, Mercari then takes that payment, generates label, then pockets the difference (not me) and still reports those shipping costs in my total un-adjusted gross income/sales to the IRS at the end of the year. When the IRS looks at those numbers, they will assume that it's all profit AFTER I submitting my deductions.

 

Example: My seller fees are also included in the un-adjusted gross sales they send to the IRS. My Mercari reciepts say: -$0.80 seller fees, indicating an immediate reduction in the profit I get to my bank after sale is completed, charged by Mercari to sell on their platform. Obviously this would be deducted through C.O.G.S, But! in the case of buyer paid shipping the receipt of sale shows, shipping: $0.00, indicating the buyer paid shipping as part of my sale so Mercari can generate the label. but it's STILL CONSIDERED part of my income by the IRS reflected in the total gross sales that Mercari reports, see what I mean? This is not profit I should be TAXED on.

 

So essentially what I'm asking is: Can I deduct buyer paid shipping charges through C.O.G.S deduction, because it's the only way (I think) a small business can deduct costs, and as soon as I have to pay a tax on something that is not profit, that's a COST TO ME. On top of all that, I have to lower the price of my inventory to compensate for buyer paid shipping, also, if i don't deduct it, then the income left over after submitting my taxes/deductions will be considered my taxable profit by the IRS. But! those shipping charges, once again, (are not profit to me), they are lumped in the total amount of gross sales they send to IRS, even if I didn't profit from those charges. In fact, it is actually Mercari who is profiting from the difference. Meaning If I don't deduct those charges, I will (as I understand it), effectively be getting taxed at 20% on shipping charges lumped into my gross sales as a result of not deducting them, that I NEVER PROFITED FROM. I hope that's more clear. Thanks!