Inventory
Cost of goods sold for resellers
Cost of goods sold is what you paid for the items you sold this year, and for many resellers it's the biggest deduction on the return. It works on inventory, not on spending, which is why it trips people up. On the 2025 Schedule C it's Part III, lines 35 to 42.
When can resellers deduct inventory?
Resellers deduct inventory when it sells, not when they buy it. Until then it's an asset. Say you spend $8,000 on inventory in 2026 and sell items that cost you $5,000. Your cost of goods sold is $5,000. The other $3,000 sits in closing inventory and is deducted in the year those items sell.
Opening inventory + purchases − closing inventory = cost of goods sold.
Why does the timing matter?
A reseller whose pile of unsold stock is growing fast can have a big cash outflow and a taxable profit in the same year. The cash went out; the deduction hasn't arrived. Deducting every inventory purchase in the year you buy understates profit now and overstates it later, and unwinding that is far more work than doing it right from the start.
Does the small-business method let you deduct inventory when you buy it?
No. Small businesses can skip keeping a formal inventory, but the deduction still waits for the sale. The 2025 Schedule C instructions let a small business taxpayer, one with average annual gross receipts of $31 million or less over the 3 prior years, treat inventory as non-incidental materials and supplies.
The regulation then says that inventory is "used or consumed" in the year you provide it to your customer, and its cost is recovered that year, or in the year you pay for it if that's later (Treas. Reg. 1.471-1(b)(4)(i)). The IRS also says the de minimis safe harbor doesn't cover inventory (IRS tangible property rules).
How do you track cost basis without drowning?
Tracking cost basis means knowing what each item cost. IRS Publication 583 says inventory records should show the amount paid and that it was for inventory. There are three ways to meet that, in rising order of effort, and the first is the least work over a year because it happens while the receipt is in your hand:
| Method | How it works | Suits |
|---|---|---|
| Per item at purchase | Every item gets a record with date, source and price on the day you buy it | Anyone buying identifiable items one at a time. Most accurate, and the least work overall, because it's done while you have the receipt |
| Split across a lot | A bulk purchase is spread across the items you pull from it, for example by expected sale value | Bins, bales and pallets, where no item has its own price |
| Year-end count | Count and value what's left at year end, and work cost of goods sold out from that | Sellers who haven't tracked per item, as a way to reach a figure they can defend |
Whichever you use, apply it the same way every time and be able to explain it. A method you can describe and repeat beats a more precise one you use now and then.
How do you split the cost of a bulk lot?
Pay $60 for a bin haul and pull thirty items, and no item has its own price. As of September 2026, the IRS hasn't published a method for splitting a bulk lot bought for resale. The closest general rule says that when part of a larger property is sold, the cost of the whole is "equitably apportioned among the several parts" (Treas. Reg. 1.61-6(a)).
One reasonable way to do that spreads the lot's cost by each item's expected sale value, so an item you expect to sell for $60 carries more of the cost than one you expect to sell for $6. For inventory, the regulations give "greater weight ... to consistency than to any particular method" (Treas. Reg. 1.471-2(b)), so write the method down once and use it every time. A CPA or enrolled agent can confirm it suits your books.
What about items that never sell?
Inventory you donate, throw out or can't sell is handled differently from inventory that sells, and the treatment depends on your circumstances and your method. It's easy to get wrong in a way that repeats every year, so ask a CPA or enrolled agent rather than deciding from an article.
How do you do the year-end inventory count?
The year-end inventory count gives you closing inventory, the number that sets this year's cost of goods sold and becomes next year's opening figure. It means counting and valuing what you still hold at year end. For many resellers it's a January afternoon with a spreadsheet, and far easier if you recorded items when you bought them.
- Count what's physically on the shelf, not what your listings say
- Value at cost, or at the lower of cost or market if that's your method (Schedule C, line 33, lists both). Never at what you hope to sell it for
- Include items listed but unsold, and items bought but not yet listed
- Keep the working papers. This figure becomes next year's opening inventory
Which records back up cost of goods sold?
Cost of goods sold stands on two records: what you paid (receipts, a purchase log, your bank statement) and what sold (your marketplace sales reports, such as eBay's 1099-K detailed report). Keep both for at least 3 years after you file in the usual case (IRS).
A listing adds a third piece. Photos, a title and a price set from sold listings record what the item was, which helps you match a sale to its purchase. FlowLister, which publishes this site, writes eBay listings that way from photos. It isn't a bookkeeping tool, and it's AI, so it can get things wrong.
Can resellers deduct inventory when they buy it?
How do I calculate cost of goods sold?
How do I assign cost to items bought in a bulk lot?
What if I never tracked what I paid for my inventory?
Disclosure We build FlowLister and publish Reseller Taxes. FlowLister writes eBay listings from item photos, with a price taken from sold listings, and for a reseller that listing becomes part of the record of what sold. It's AI, so it misses things. It doesn't prepare taxes or keep books, and nothing on this site is tax advice.
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eBay taxes: what you owe and when eBay sends a 1099-K
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