Seems no two people here are making the same assumptions.
Sale of inventory would be reported on Sch C.
Not necessarily. Earlier it was stated:
My wife and I own an LLC.
If "we" owned the disregarded entity then it's perfectly possible that no SCH C was filed ever for this business since the business has more than one owner. More than likely a 1065 partnership return was filed.
If the owners live in a community property state and file a joint tax return, and elected to split all business transactions 50/50 and each report their half on two separate SCH C's, then even the sale has to be split between the two SCH C's.
Otherwise, the sale is reported on the 1065 partnership return and any gain/loss will flow through to the joint 1040 tax return via the K-1 that each will be issued by the partnership. A SCH C will not be involved in this in any way, shape form or fashion.
