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.)
