If I sold stuff on eBay that I got for free or cheap from fleemarkets and garage sales. And don’t have receipts do I put zero for cost of goods sold?
If audited, the IRS does not have to allow any cost that you can’t prove with reliable records. If you didn’t keep records, you should probably assume your cost was zero and pay tax on that basis because that’s what the IRS will do.
Would they throw a red flag if I put 0 for cost of goods sold or is that common
I don't know. Even if you are audited, the best defense is the truth, in this case, that you didn't keep records. The IRS does have an expectation that people who operate a business will conduct themselves in a businesslike manner, which includes accurate recordkeeping. But I don't think that would factor in here. For example, if you claimed that your average cost per item was $10, but had no records, the IRS would be expected to disallow your guess and assign a cost of zero, on the grounds that you are expected to keep records. But if you are already assigning a cost of zero, they can't make you pay even more tax.
Of course, I would certainly start keeping records if you haven't already. If you are picking up bargains at garage sales that you know you can sell for more online, it would be very helpful to you to keep records including the date of the purchase, the price, and a description of the item. You also want records of the selling price, your shipping fees, listing costs, and credit card fees, so you can report the smallest profit that is accurate and reliable. You may not need actual receipts from your garage sale purchases--some of the characteristics that the IRS looks for in accurate and reliable records is that you have a consistent habit of documenting your business in a thorough and contemporaneous manner, which means you write everything down close to when it happens so its fresh in your memory. For example, if you wrote down your purchases in a small paper notebook, and transferred the purchases to a spreadsheet or accounting software in a timely manner, the IRS may find your habit of detailed documentation sufficiently convincing under the circumstances, that you wouldn't need physical receipts from the sellers.
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