I started an online selling business (sole proprietorship) for the 1st time towards the end of 2021 and the inventory was bought by another individual to help start it up. The person purchased the products overseas (the person that purchased it also lives overseas) and mailed them to me here in the US. I do have the invoice for the products.
Also, I wanted to clarify that I did not give the individual any money to purchase these goods, the person is a good friend that wanted to help get my business off the ground. I did not send them any money whatsoever for the purchase of goods.
With that, I am new to doing any sort of business taxes and for the Schedule C, I'm not sure how to correctly document Purchases (how much I spent for the inventory) for Cost of Goods Sold since I didn't buy the products myself.
I assumed I would put $0 (which would make my numbers and probably tax I owe much higher but lesson learned) but just wanted to be sure what's the correct way to complete that Cost of Good section for my Schedule C. Like I stated, I'm new to all this so please bear with me! Thank you so much..
Yes, you are correct. If you didn't pay for your inventory, then your Purchases (and inventory) have a value of zero.
Thank so much! Is there anywhere else apart from counting inventory that I will need to account for these purchases in any way?
Also, would the friend that bought them for me have to account for the purchase on their taxes in any way either?
It depends. If your friend is in business then they would use the purchases, if not there is nothing to report on the friends tax return. If you pay your friend for the purchases they would be a deduction in 2022. I understand it was a jester to give you a jump-start for your business.
Thank you so much.
My friend is not involved in the business apart from buying the products and sending them to me. They do have their own business/company but all the purchases for my products were made on a personal basis.
Follow the advice of both @PatriciaV and @DianeW777.
Enter with a basis of zero. Keep track of any purchases you make also.