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mgrlvr
Level 2

Ebay Sales

I sell part time on eBay by purchasing used items at garage sales and flea markets.  Can I deduct the cost of the item from the sale when finalizing my taxes?  Most of the items I purchase are cash transactions.  How is the best way to handle this?  Any ideas would be appreciated.  

 

Thanks for hosting this.

7 Replies
KochuK
Employee Tax Expert

Ebay Sales

Hi mgrlvr, thanks for posting the question.

 

Generally, you cannot deduct cost of purchases that you cannot support.

Below is a list of proper documents -

Quote

Documents reporting the cost of inventory include the following.

Canceled checks.

Cash register tape receipts.

Credit card sales slips.

Invoices.

These records will help you determine the value of your inventory at the end of the year.

page 12 of https://www.irs.gov/pub/irs-pdf/p583.pdf

 

For past cash basis purchases, you should re-construct a purchase ledger, listing items, dates, prices paid and location of purchases. However, they may be rejected in case of an IRS audit.

 

Hope the above helps.

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mgrlvr
Level 2

Ebay Sales

Thank you for the reply.  

I have many items that were purchased in the past 10 - 15 years.  Everything costs something when acquired.   I can now understand the new reporting and the need to keep records of the amount paid for an item going forward.  Is there any way of recovering my cost for each item?  The new requirement seems to penalize one for past purchases.   

Thanks,

KochuK
Employee Tax Expert

Ebay Sales

Apologize that I don't have better news. What I described above is always the rule, i.e. need documentation to substantiate cost/expenses at time of an IRS audit or risk the cost/expense being denied. 

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mgrlvr
Level 2

Ebay Sales

Hi!  Again thank you for your reply.

 

Here is a scenario for a past acquisition of circus models.  I have records and invoices where I paid for example $5,000.00 for a collection of items.  I would now like to sell them.  The receipt was for the collection and not individual items.  How would you break that down per item for a past purchase?

 

I have to run.  Thank you again for your answers.  

 

It appears I may not be able to recover the cost of the items I am wanting to sell.

 

 

 

 

KochuK
Employee Tax Expert

Ebay Sales

You have to do the allocation of $5,000 to the items you purchased. Thanks for a thumb up.

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Opus 17
Level 15

Ebay Sales

If audited, the IRS will want to see records of the items you sold. This could be something like a spreadsheet that lists the description, date acquired, price paid, date sold, and selling price. You would also include the selling fees and taxes you paid because those are deductible expenses.  If you don’t have records, and if you are audited, the IRS is allowed to assess tax as if your cost was zero.

 

You can start by making the best records you can, using your best guesses and whatever other information you have available. The more reasonable and complete your records seem to be, the more likely the IRS is to trust them if you are unlucky enough to be audited.  You are entitled to claim your item cost as a business expense, even if your records are incomplete, but you would certainly be at a greater risk of a tax assessment and penalty if you were ever audited.

 

Regarding inventory, there are some ways of treating inventory costs that do not require you to individually list every single item with a separate price. I don’t know how to do this because I have never filed taxes as a business with inventory. There are other experts who may be able to help you with this, or you may want to discuss your situation with a tax professional.  If you can prove you spent $5000 on inventory, but you can’t prove the exact cost of each item within the lot, you should still be able to claim something for it as cost of inventory.  (again, the more complete and reasonable your records seem to be, the more likely the IRS is to trust them.)

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
mgrlvr
Level 2

Ebay Sales

Thanks to the two experts that have provided good information.  I hope to continue with eBay as this is one of the best avenues to sell specialized items.  I can create a spreadsheet and work backward to some degree that I could defend on a total purchase cost.

 

If other experts have comments on this please post them.

 

I started using Turbotax two seasons ago.  This forum is very valuable.  I hope I will be able to reference this information in the future.

 

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