I started selling products online last year and was doing basic taxes for years so I'm new to all this and learning. I'm working on my Schedule C and need help with documenting an accounting method.
Currently, I calculated all my income and expenses EXCEPT my Sales and Inventory using the Cash method. I calcuated my Sales and Inventory using the Accrual method instead. I know I don't have to keep an inventory but I want to.
I'm following the guideline from this IRS document updated in January 2020 (https://www.irs.gov/pub/irs-pdf/p538.pdf) that states:
"If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales"
So my question is for filling out my Schedule C tax form because I do not want to make assumptions about how the IRS interprets my filled information.
If I am using Cash method of accounting for everything else but using Inventory method my Sales and Inventory, how exactly do I correctly fill Line F (Accounting Method) on the schedule C form? Do I:
1) Choose Cash accounting method and just assume the IRS knows and understands that I used Accrual accounting for my sales and inventory and Cash accounting for everything else based on their rule above
2) Choose Accrual accounting method and redo the rest of my bookkeeping based on Accrual method since that's the method I had to use for my inventory & sales
3) Choose Other and put in Hybrid or Combination Method.
Thanks so much for your help!
