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!!
