How do I itemize shipping charges from sales via Mercari selling app? What they will report is total w shipping.

[slp07]

I have the separated ship charge amount

[ToddL99]

Do you want to itemize shipping charges in TurboTax Business, QuickBooks or TurboTax Self-Employed/Home and Business?

[slp07]

My apologies, I didn't word that properly. How do I deduct shipping paid via the 3rd party site Mercari?

They are reporting sales of $26905

This amount was shipping the buyers paid $3169.78

[ToddL99]

So your actual receipts were $23,735.22?

[slp07]

Correct. The 1099K they submit shows total with their shipping charges included of $26905

[ToddL99 · Accepted solution]

Enter the shipping charges in the "Other Miscellaneous Expenses" interview of TurboTax Self-Employed (Home & Business).

The interview is the last one listed in the Self-Employment  >  Income and expenses > Expenses > Add expenses for this work.

Description - "3rd Party Delivery Costs". See the attached screenshots for help in navigating and entry.

[slp07]

Got it entered there. Thank you so much for your time!

[Entrepreneurdude]

Thank you both for this post. This is giving lot's of trouble to understad. Am I correct in assuming that, since Mercari reports shipping expenses that are not profit to you as total sales (buyer pays), therefore itemizing just means your telling the IRS that although they see 26k in sales, about 3k of that was (buyer paid shipping), meaning shipping costs (part of the sales) that is 'not income' I receive. Otherwise the IRS will tax you thinking that was also income you received?

Example: When buyer pays, Mercari generates label using that charge, so I don't get that money, nor any extra concerning the difference, since Mercari will pocket the difference in label price.

Do I have this option if I DON'T itemize my taxes, meaning I just take the standard deduction or is this an option everyone has 'third party shipping' itemize? And if I don't have this option, should I just switch to free shipping in which which case your putting the shipping expense built into the price of the sale, and therefore I can deduct as C.O.G.S since it's an 'expense' that I incurred as part of the sale. Am I missing something?

[DianeW777]

Yes, that is not income, rather you would expense that as shipping costs if the shipping amounts are included in your total receipts from Mercari.  You are not required to report income you did not receive.

If this is a business all income and expense would be entered on Schedule C.  If this is a hobby the income is reported as other income directly on the Form 1040.  Be prepared with the detail to show you didn't actually receive the shipping fees that were allocated to you when the income was reported.

• Where to I enter Schedule C?

Please follow the instructions below to report Other Income:

1. Click Federal Taxes -> Wages & Income and scroll down to Less Common Income
2. Go to the last selection, Miscellaneous Income and click Start
3. Go to the last option, Other reportable income and click Start
4. When it asks, "Any other reportable income?" > yes and then type in a description and the amount to report it on your tax return.
5. TurboTax Online and TurboTax CD/Download will use the same procedure

[Entrepreneurdude]

Thank you so much, literally can't sleep over this. Basically your saying I won't be taxed if buyer pays for ship label directly through Mercari since money never touches my hand or bank, and even if Mercari reports those shipping charges within the total sales amount to IRS it's not profit, so 'income' does not mean 'profit,' but instead gross sales before costs are taken out. Therefore, I'm not required to report this profit, which justifies deducing as expenses through C.O.G.S deduction.

So in a sense, even though the IRS sees a total sale amount at the end of the day I'm the one who determines my deductions anyway. So it's just a matter of simply deducting all those shipping costs through the C.O.G.S deduction, so the image you sent is literally part of the C.O.G.S sold functionality in Turbotax, is that right? Meaning that's how I deduct those shipping expenses? Sorry (this will be my first year using Turbo tax self employed), so I haven't seen that screen at all yet. When I saw the title 'Less common income'  I thought this meant I'm reporting more profit, which is the opposite to what I'm trying to do. Then I thought, 'jeeze,' am I assuming income means profit, instead of meaning: total gross sales before costs are taken out, therefore why I'm getting confused? Do I have any part of that wrong? Thanks again, much appreciated!

[ErnieS0]

The screenshot that awesome Tax Expert @DianeW777 posted was for hobby income.

If you had $26k reported through Mercari, that doesn't sound to me like a "hobby".

Cost of goods sold is in the inventory section of Self-employment and expenses in TurboTax Self-Employed online.

• Select Federal in the left column
• Select Self-employment and expenses
• Click Review net to your business
• Click on Add expenses for this work.
• Scroll down to Less common
• Click on show more at the bottom of the screen
• Do it again
• Eventually you will see Inventory. Click Add and Continue, the Start.
• Continue until you see Let's get the costs of your goods and enter your cost of goods sold

[Entrepreneurdude]

Thanks I will be reporting at the end of the year, so this year (will be) my first year using Turbo tax self employed. So far I have about 2.4k gross in about two months, so by the end of the year I would have passed hobby income, just needed to know how to deduct Buyer paid shipping charges reported by Mercari marketplace that is paid by buyer to generate the label. It's added to the total gross sales amount they report to IRS, which even includes my seller fees that have already been taken out at the time the sale is made. That is a direct cost to me reduced from my profit directly, unlike buyer paid shipping. Because the IRS is just looking at the total gross amount, so how would they even know that I did not profit from those shipping charges? 

So it only seems fair for me to be able to deduct those shipping expenses through C.O.G.S, even though it was not an expense, but at the same time if I don't report those deductions they just use the total gross to determine my profit and will tax me on it after submitting taxes, (Total gross reported - deductions = taxable Profit) that's how they determine your taxable income (actual profit after costs), right? That was my confusion, free shipping vs buyer paid shipping. Doesn't seem fair that one can deduct and the other can't when free shipping people just raise the price of the item and don't have to pay shipping changes anyway. Your thoughts?

[MarilynG1]

Yes, you can deduct shipping charges you paid as a Business Expense.  All your business expenses are subtracted from your Income, to arrive at your taxable Net Business Income. 

Unless you purchased items to sell, you don't need to use Inventory. 

Click this link for more detailed info on How to Enter Business Expenses.

Since you're just starting out, you may find this Reporting Business Income and Expenses info helpful. 

[Entrepreneurdude]

Ok, thank you so much, I read the links, but they don't address my situation. I am 100% an inventory based re-selling business, small business and I use the accrual method/ average cost method. It's my first year of business. Let me re-phrase the question. Buyer paid shipping vs me paying for shipping = in both scenarios the buyer is ACTUALLY paying for the shipping. Free shipping just means I raise the item price and include the shipping costs into the sale price, so it only LOOKS like I paid for it.

Buyer paid shipping (what I use), means the customer pays me for the shipping. However, on Mercari, customer pays for the label, Mercari then takes that payment, generates label, then pockets the difference (not me) and still reports those shipping costs in my total un-adjusted gross income/sales to the IRS at the end of the year. When the IRS looks at those numbers, they will assume that it's all profit AFTER I submitting my deductions.

Example: My seller fees are also included in the un-adjusted gross sales they send to the IRS. My Mercari reciepts say: -$0.80 seller fees, indicating an immediate reduction in the profit I get to my bank after sale is completed, charged by Mercari to sell on their platform. Obviously this would be deducted through C.O.G.S, But! in the case of buyer paid shipping the receipt of sale shows, shipping: $0.00, indicating the buyer paid shipping as part of my sale so Mercari can generate the label. but it's STILL CONSIDERED part of my income by the IRS reflected in the total gross sales that Mercari reports, see what I mean? This is not profit I should be TAXED on.

So essentially what I'm asking is: Can I deduct buyer paid shipping charges through C.O.G.S deduction, because it's the only way (I think) a small business can deduct costs, and as soon as I have to pay a tax on something that is not profit, that's a COST TO ME. On top of all that, I have to lower the price of my inventory to compensate for buyer paid shipping, also, if i don't deduct it, then the income left over after submitting my taxes/deductions will be considered my taxable profit by the IRS. But! those shipping charges, once again, (are not profit to me), they are lumped in the total amount of gross sales they send to IRS, even if I didn't profit from those charges. In fact, it is actually Mercari who is profiting from the difference. Meaning If I don't deduct those charges, I will (as I understand it), effectively be getting taxed at 20% on shipping charges lumped into my gross sales as a result of not deducting them, that I NEVER PROFITED FROM. I hope that's more clear. Thanks!

[ZoltanB45]

I am responding to the final question, particularly what was asked in that last paragraph, about deducting the buyer paid shipping.The shipping may not be a cost to you, because you passed it on to the buyer by increasing the price. However, your revenue has increased by the amount you increased it by. Since you are recording that as revenue, you will deduct the shipping and add it to the Cost of Good Sold.