I have just completed my 3rd tax year on eBay (since 2019), but only in 2021 did I cross the IRS sales threshold pushing me from Hobbyist status to Small Business.
I am struggling coming up with my Beginning Inventory for 2021.
While I can reasonably obtain and calculate records for all Business Purchases and Costs of Good Sold (and subsequently Ending Inventory) for 2019 and 2020, it will be very difficult to determine the Beginning Inventory for 2019. I started eBay in 2019 already with inventory, some of which was purchased locally, across other sites, and in stores...across multiple years and payment methods.
I have thought up 3 ways to come up with my 2021 Beginning Inventory, and would like advice on each.
- By the Book: cross check all 2019 Purchases with all 2019 Sales and whatever items don’t show up in 2019 Purchases (my actual Beginning Inventory) need to be assigned a purchase cost (based on some external records or my best recollection). This would be horribly tedious, and likely fraught with missing info and errors, yet the most accurate picture. This would then give me what I need to calculate all other pieces of info up until 2021.
- A Wash: pretend that my 2019 Beginning Inventory is the same as the Cost of Goods Sold in 2019. Then the subsequent year’s (2020’s) Beginning Inventory would just equal 2019’s Purchases (Ending Inventory). A lot of work still, but more doable. This would then give me what I need to calculate all other pieces of info up until 2021.
- Forget the Past: I would just look at 2021 here; I would calculate my 2021 Beginning Inventory by first cross checking all 2021 Purchases with all 2021 Sales. I would then remove all items that appear in both lists from the 2021 Sales list. I would then add the cost of my 2021 Purchases to the remaining Net 2021 Sales. This would give me my Beginning Inventory (assuming I had nothing already), and then my Ending Inventory could be obtained by subtracting the Cost of Goods sold from my Beginning Inventory. The way I figure it, if I bought it, it’s in inventory (of course). If I sold it, it must have also been in inventory. As long as I omit duplicates of items bought and sold in the same year, I feel this is a reasonable representation of Beginning Inventory without mucking around in past years that it didn’t matter.
Thank you