I am in the eCommerce business. In order to send products to my customers, I had to buy them first and send them to them. However, I found from profit and loss that I actually lost because my suppliers had shipped goods to people that did not order them and despite a dispute, a refund was not made to me.
I also lent a certain amount to my business during the year.
Which sub-category of business expense do I add the expense of purchasing products and also the business loan?
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What kind of business are you referring to? A Schedule C (sole proprietorship)? A 1120 or 1120S (corporation)? A 1065 (partnership)?
A sole proprietorship.
Since you don't appear to be inventorying these items for sale, you appear to be in the business of delivering a service of buying goods for others and seeing that they are sent to your clients.
Thus, you would declare the amounts that you received form customers as income and the amounts you spent to buy and ship the items as expenses. Put this way, it is certainly possible that you could lose money in the process.
Which categories? The income will go under gross receipts (line 1). If you are not treating the items resold as inventory, the you can create a category under Miscellaneous and give it a name that will be clear to you.
" I also lent a certain amount to my business during the year."
There is a considerable overlap between your personal money and the money of a sole proprietorship. You can take money out of the business at any time (the owner's draw), and conversely, you can put money in at any time. You should have separate checking and other accounts for your business and your personal use.
Generally, you are not loaning the business money, but are just investing in your business to increase your equity.
If you actually loaned your business money (i.e., drew up papers and everything), you could deduct the interest paid on the loan, but then have to turn around and report the interest as income on your 1040 - there is no tax benefit to doing it this way.
Just have separate accounts and log whenever you make transfers from your personal account to your business account (and vice versa). This is a good business practice anyway so you know where your money is going.
You don't report owner's draws on your Schedule C and you don't report equity contributions on Schedule C either - another reason why it's easier to do it this way.
Thanks so much.
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