OT - Tax Return Question

[Eric72]

I opened an eBay store in 2021. In order to properly file a tax return, I'll be entering beginning and ending inventory totals.

My question seems simple; however, I've learned this is seldom the case with anything tax-related. For the sake of keeping this post brief, let's say I decided to turn my sports card collection into my inventory.

Should I only list as inventory the items I currently have listed for sale?

I've created literally thousands of eBay listings this year. I plan to list thousands more. All the items (there are actually vinyl records, comic books, etc.) are inventory, in the truest sense of the word. However, I haven't been able to list them all yet. There is only so much time each day.

[Jason19th]

The issue really isn’t inventory. You need to match up gross sales with the cost of those items to get net sales. Then you can take other allowed business expenses

[Eric72]

Originally Posted by Jason19th

The issue really isn’t inventory. You need to match up gross sales with the cost of those items to get net sales. Then you can take other allowed business expenses

I have the costs. I'm just trying to figure out whether to include (in my ending inventory total) items that are not yet listed for sale.

For instance, I listed a few items today. I've had them for a decade (or more) but didn't have them listed for sale as of 12/31. Should they be included in my ending inventory total for my tax return next month?

[Jason19th]

1st You should talk to a tax professional
2nd I don’t believe that inventory should be used in the manner you are. In many business inventory is what’s called fungible which means that basically every item of inventory is the same as the others. For example if you sell paper each box of paper is the same. In these business you often calculate gross income by examining beginning and ending inventory. Sports cards are different however because each card or set is unique in you inventory. Once you sell a card you don’t have another just like it that is still in your inventory. For most sports card seller therefore there income has little to do with inventory. The relevant measure is what items did you sell and what is your cost of an item. For example you sold a 1935 Goudey for 10 dollars. If you paid 5 dollars for that specific card your net sale is 5.00 on that item

[robertsmithnocure]

Interesting question.

Calling BobC!

[Jewish-collector]

When it comes to tax questions, sometimes you just gotta ask, "Where the hell are you BobC ?"

[Michael B]

Originally Posted by Jewish-collector

When it comes to tax questions, sometimes you just gotta ask, "Where the hell are you BobC ?"

Alan is correct. However, consult the tax professional that you use and that is not Turbotax.

[Peter_Spaeth]

Originally Posted by Jewish-collector

When it comes to tax questions, sometimes you just gotta ask, "Where the hell are you BobC ?"

Over under on the length of the response when Bob posts?

[Eric72]

Originally Posted by Peter_Spaeth

Over under on the length of the response when Bob posts?

Characters, words, sentences, or paragraphs?

(in all seriousness, I am looking forward to a detailed response.)

[BobC]

Originally Posted by Eric72

I opened an eBay store in 2021. In order to properly file a tax return, I'll be entering beginning and ending inventory totals.

My question seems simple; however, I've learned this is seldom the case with anything tax-related. For the sake of keeping this post brief, let's say I decided to turn my sports card collection into my inventory.

Should I only list as inventory the items I currently have listed for sale?

I've created literally thousands of eBay listings this year. I plan to list thousands more. All the items (there are actually vinyl records, comic books, etc.) are inventory, in the truest sense of the word. However, I haven't been able to list them all yet. There is only so much time each day.

Eric,

First off, what kind of tax return are you planning to file for the business, Schedule C that goes along as part of your individual Form 1040 tax return? Assuming so, and based on your statement that you just started your business in 2021, that likely means you were not yet in business as of 1/1/2021, in which case your opening inventory on Page 2, Line 35, of your Schedule C form should be $0. Line 36 is the one that asks for the amount of Purchases you made during 2021. In your case this wouldn't necessarily be purchases you made this past year, this should be the total tax cost basis of all the items you've acquired over the years that you've now decided to contribute to your new business as sales inventory.

Your specific question then is if you should include as Purchases the tax cost of everything you've ever bought and collected, or just the tax cost of items sold or listed for sale sometime during 2021. You can honestly do it either way, but for your own specific purposes you should ask yourself a few questions first:

1. Are you really going to sell off absolutely everything you've ever collected?

2. Is there absolutely no chance you'll ever change your mind and end up keeping some things as collectibles long term?

3. There is absolutely no chance you'll be acquiring/buying any new collectibles while selling everything off, nor possibly decide to start collecting again?

4. You already have the tax cost basis for everything you've ever collected/acquired all listed and spelled out?

If you can truly answer yes to all these questions, I guess go ahead and just consider everything you have as business inventory and put the total tax cost basis of everything down as Purchases on Line 36. But if you answer no to any of these questions, I would only put the tax cost basis of items you had sold and listed for sale in 2021 down on Line 36. You can then record items you initially list for sale as Purchases on future Schedule C forms then.

Personally, even if I answered yes to all the questions, I'd still only report the items I'd sold or listed for sale as purchases in 2021. That way it provides some flexibility in case I changed my mind about collecting again, or other circumstances changed, like my passing away. If I pass and everything is in inventory, I end up leaving an ordinary income asset to my family/heirs. Whereas, anything not yet transferred to the business would likely get long term capital gain treatment for the family/heirs. And the Basis Step-Up inheritance rule is one that has already been talked about as possibly being removed at some point, which could potentially result in having a collection treated as totally business inventory subject to ordinary income, not as favorable tax-wise. It may never happen, but why take the chance if you have a choice, and there really isn't any downside. That's why they call it tax/estate planning.

Regardless of which way you ultimately decide to go, the ending inventory amount you're going to report on Line 41 of Schedule C is basically a plug figure to get Line 42 to equal the Cost of Goods Sold you can then deduct against sales for the tax year. And if you do decide to not list everything as inventory right now, you are correct in that your ending inventory on Line 41 is basically your tax cost inventory basis for all the items you listed for sale during 2021, that did not sell in 2021.

Also, for Line 33 I'd check Box A if it were me.

Hope this helps, and let me know if you need further assistance. Good luck.

[BobC]

Originally Posted by Michael B

Alan is correct. However, consult the tax professional that you use and that is not Turbotax.

Don't forget Turbotax actually hires tax professionals to offer online assistance to people that want it. I know someone who was doing that a couple years ago. Good, knowledgeable guy was the Controller for Greats Lakes Brewing at one time. Just trying to follow the Turbotax instructions yourself, now that's a different story. LOL

[BobC]

Originally Posted by Peter_Spaeth

Over under on the length of the response when Bob posts?

Am I going to have to start with the attorney jokes!

[frankbmd]

Originally Posted by BobC

Am I going to have to start with the attorney jokes!

I believe Peter charges Leon for his posts.

[Lorewalker]

Originally Posted by Peter_Spaeth

Over under on the length of the response when Bob posts?

Over under on how many people try to give tax advice who are not CPA's?

[Peter_Spaeth]

Originally Posted by Lorewalker

Over under on how many people try to give tax advice who are not CPA's?

Lower I will wager than the number of nonlawyers who will pontificate about the law.

[Michael B]

Originally Posted by Peter_Spaeth

Lower I will wager than the number of nonlawyers who will pontificate about the law.

Peter,

That depends on the field of law. Every day I tell lawyers what to do or the deal will not work. Not a lawyer, though I have been married to two. I got the second one, my current wife, through property law. She wanted me to attend her class and tell the professor he did not know what he was talking about. I told her I did not want her to fail the class. Parrot what he said, then ingore it. I've never done any research on Blackacre.

[Michael B]

Originally Posted by BobC

Don't forget Turbotax actually hires tax professionals to offer online assistance to people that want it. I know someone who was doing that a couple years ago. Good, knowledgeable guy was the Controller for Greats Lakes Brewing at one time. Just trying to follow the Turbotax instructions yourself, now that's a different story. LOL

Yes, I fully understand that they hire very qualified professionals. I respect that approach. I saw his question, and the ones that many on this site ask, and felt that he needed to sit in front of a qualified accountant/CPA who would answer his questions and walk him through the scenarios. Just went over the taxes with my accountant last night - ouch!!

[Peter_Spaeth]

Originally Posted by Michael B

Peter,

That depends on the field of law. Every day I tell lawyers what to do or the deal will not work. Not a lawyer, though I have been married to two. I got the second one, my current wife, through property law. She wanted me to attend her class and tell the professor he did not know what he was talking about. I told her I did not want her to fail the class. Parrot what he said, then ingore it. I've never done any research on Blackacre.

I hated property law more than any other subject in law school. They lost me at springing remainders. Mercy.

[BobC]

Originally Posted by Michael B

Yes, I fully understand that they hire very qualified professionals. I respect that approach. I saw his question, and the ones that many on this site ask, and felt that he needed to sit in front of a qualified accountant/CPA who would answer his questions and walk him through the scenarios. Just went over the taxes with my accountant last night - ouch!!

Fun stuff, isn't it? LOL

And it is just going to keep getting worse over the next several years. Ugh!

[Michael B]

Originally Posted by BobC

Fun stuff, isn't it? LOL

And it is just going to keep getting worse over the next several years. Ugh!

My wife does not work. Her capital gains were 50% more than my salary last year and my salary, with incentives and bonuses, was 85% higher than my base salary. Fortunately, she is paying the tax bill.

[BobC]

Originally Posted by Michael B

My wife does not work. Her capital gains were 50% more than my salary last year and my salary, with incentives and bonuses, was 85% higher than my base salary. Fortunately, she is paying the tax bill.

Here's hoping those gains don't turn into big losses in 2022. LOL

[Hordfest]

This thread is making me dread selling...I was so excited to sell my old collection but now I'm quite nervous about all of this.

[BobC]

Originally Posted by Hordfest

This thread is making me dread selling...I was so excited to sell my old collection but now I'm quite nervous about all of this.

Do yourself a big favor, if possible. Don't just sell everything one year, and then wait till tax prep time the following year to finally bring it up to some qualified tax professional you are then looking to for tax prep assistance. The more valuable the collection, the better off you are to discuss it with someone as early as possible, maybe even before putting anything up for sale. Good luck.