So will the ending inventory be the value of the clothing that was sent back to LuLaRoe if you use option 2?

Yes, if you have no other inventory left.

So if option two is used, will my beginning inventory for 2018 will be the amount of the merchandise sent back?  Where line in Sch C does the amount received by check get  reported?

I guess I don't understand if I purchased the clothing and returned it, how would that count as income?

The refund offsets your original purchase cost. If you receive the refund in the same year as you write off the inventory, it is not income. (There is a place under inventory to enter refunds & credits.) But if you have written off the inventory (received a business deduction) this year, the refund must be reported as income next year.

Makes sense!   I had to look at a Sch. C to see the flow.  Thank you.

For what it's worth, I'm reporting my inventory as a loss this year. The refunded amount we got in February will be taxable under the new tax laws.

I have this same problem as i started in the sam year as i ended and just recieved my refund check a couple days ago. So would the same options apply?

Yes, if you returned the inventory in one tax year and received the refund in the following tax year, the same options apply.

I received my refund the same year (2017) but I can't find the location to put the refund amount. Where do I input the refund amount?

Would I just say I don't have any inventory to report? Because all my inventory was sent back?

The refund is entered as other business income to offset the cost of inventory you purchased. But if it's a wash (refund for the inventory was exactly what you paid), you may choose to report no inventory and no refund.

I hope it's ok if I add on, or inquire further about this question as I am in the same situation. I'm a visual person, so I'd like to use actual numbers if that's ok for option 2.  For 2017, if I had the following BOY-10,000 Purchases - 5,000 EOY-8,000 (the amount that was sent back in 2017), Gross Sales-10,000, my gross profit/income (keeping it simple as there will be expenses) would be 3,000. For 2018, BOY 8,000 Purchases-0 EOY-0 Gross Sales-0 Returns-8,000, it would end up being a "wash" as gross profit would be 0.  Using the same numbers, if I were to go option 1, then I would show a gross profit/loss of -5,000, but in 2018, I'd be using my return of 8,000 and showing it as income (still using schedule c?).  

It seems like option 2 is the better way to go if I'm doing the calculations correctly. I don't know why, but this throws me off every year. Just can not grasp it!  haha. Thanks so much!!