CPA explains how to stop dreading and start understanding how cost of goods sold actually works!
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- Опубліковано 8 тра 2023
- I received similar questions about inventory and cost of goods sold almost every day during this past tax season, and every day I told myself "I need to make a video on this!" Well this is the video! I discuss the accrual method for inventory vs cash method for inventory, how they work, and how they can be presented on the tax forms.
COGS tracking spreadsheets: notyourdadscpa.com/inventory-...
COGS formula sheet (used in video): docs.google.com/spreadsheets/...
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Thank you! I couldn’t figure out why TurboTax was forcing the accrual inventory method. Thanks for the direct explanation.
Me too!
Always enjoy seeing what new title you add to CPA! 😜
Hi Mark, great explanation of the differences between accrual and cash methods. Thank you
This was INCREDIBLY helpful. Thank you very much!
Just found your channel, signed up and am watching as many of your videos as possible. Thank you so much Mark for sharing the information you do as a CPA - MUCH appreciated!
Great video. I really appreciate knowing that the accrual method for inventory is built into the form and there is nowhere I need to specifically mark it. Thank you!
This was very helpful in finishing this section of the tax process.
As a CPA myself, when resellers ask me about COGS, I refer them to your excellent explanations!
awesome video, this clarifies things ALOT !
Excellent video. I was trained in accounting but it’s been so long since I used so much of the knowledge. I don’t think there was a lot of online reselling back when I was taught so, this definitely was very helpful! I shared this in the reselling group that I admin for. Thank you. ❤
Thanks for spreading the word!
Perfectly explained! 👏
Good explanation. Personally I calculate COGS monthly. That keeps my financial reports more informative, and makes estimated tax payments more accurate.
I just started selling in September, almost all was personal items around the house that I've had for years. A few of the more expensive collectibles, I still have the receipts. I understand how to do the items I purchase but how to do my personal items is what I'm unsure about. Especially since I already have some listed from 2023 that carried over to 2024. I probably sold about $400 without expenses in 2023 as a trial period, but I'm doing a store and trying to get my inventory set up.
Same here.
So incredibly helpful. THank you!
GREAT VIDEO!
Thank you for sharing your knowledge
Thank you, great video!
Ultra important video that unfortunately many businesses do not understand.
Spread the word!
Beginning inventory and purchases during the year are easy to know as long as you keep track of your purchases. But ending inventory seems impossible to calculate when for example, you purchase a pallet containing all sorts of items, some of which sold during the year while some didn't. How do you know how much each item that hasn't sold costed you when you made a single payment for the whole pallet? If all items in the pallet were the same, it would be a matter of deviding what you paid for the pallet by the number of items and then multiplying by the number of items that haven't sold, but if all items in the pallet are different, then the cost of each one seems like impossible to know.
Hi Mark, great video. I bought lots of things before actually starting to sell. Fear kept me from listing but not buying and as I started listing things, I didn't list everything in 1 year. Nor do I have everything listed yet. I didn''t include those items I bought in the past in the inventory. I was adding it in as I listed it, it sounds like I have been doing it wrong all this time. How do I account for the death pile especially since I haven't added any items in 12 months but have been selling off some of my inventory. Death pile inventory may be about $400-$600, my sales - expenses won't show a profit if I just add it in 2023 - my profit is very small if any. Even if I tried to do it by using beg, ending and COGS. This year my accountant said it didn't match the numbers I gave her (I thought they were ok). She also keeps warning me that I need to have a profit 1 out of the 3 years I'm claiming it as a business, hence my fear of just adding all the death pile $'s in 1 year. Could I use the lazy accountant by using my COGS, even if I started with ending, beg, COGS already? TIA Silvia
Thank you!
I'm thinking you're just going to have to come live in my office. I hope you like Florida. Welcome to the team 😂
I'm open to Florida!
With cash basis inventory what do you select for Sch C line 33 method used to value closing inventory? Cost? Lower of cost or market? Or other? Thank you!
Wow I didnt know that you have a Lazy accounta method!!! I keep on track the COGS each month so I know ho wmuch COGS at the end of year, COunting the inventry each year is crazy if I alreay know the COGS number.
Crap, All my reciepts faded and I have a deathpile. Im lost and confused. Now wha5??? 😢
But what if im selling stuff from a previous (dba) business. for example i started a llc this year 2024. And opened a store brick an motor. I took all the stuff i have purchased over the years and put it in my store along with the storage unit auction inventory. I made this current year of 2024. I have sold so many items i have occured over the last 2-3 years. i have sold over $20k in inventory in 2 months but alott of that inventory is stuff i have occurred over a few years of selling on ebay and some of it is from what i have gotten this year about $8k i have spent this year on inventory (from storage units). Thats unfair on my part to say i have sold over 20k but only bought $8k worth of inventory. Yet most of the things i sold were mine for the last couple years. Please help me understand. With that being said i will now for the future units i get, for example say i spend $300 on a unit with 100 items and only keep 70 items (trashing 30) i then will do 300 divided by 70 ($4.28). And write 4.28 on each items tag in the store . When it comes time to do ending inventory i will add all the tags original price (4.28) and that will be my ending price. Correct?
Started selling three months ago. Hit 300 in sales two days ago and Top Rated Seller yesterday. My question is do I keep doing what I am doing or go the LLC route? I guess the main question is can I write off anything being a reseller without having a LLC? My sales are only about $1,000 a month to supplement my government pension. I sell low end sports cards. Can I write off purchases of supplies or even packs and boxes of cards?
This shows me how much of a mess my inventory tracking is
I had a “hobby” during 2022 and some time before that. During that time I accumulated a number of raw materials and “tools”. Should I list those items as my being inventory for 2023 since I made my hobby a business in 2023?
What if I bought a box of vintage Christmas Ornaments. I paid $20.00 for the box. I have no idea how many ornaments are in the box just yet (as I have other items to list and haven't gotten to this box just yet)... is it a good idea when purchasing to go through the box and count how many orrnaments are in there? Sometimes I may list a single item, and sometimes I may group items into a lot - and I won't know until I get ready to list them. This is hard to evaluate with the beginning or ending inventory?
How do you list items that you just have around the house that you start your business with for the tax form. Do those items not count, what do you put for those?
If doing cash method for inventory do I have to keep a list of each item and purchase amount?
Also when is your busy tax season over? If you do any type of one on one time answering questions I would like to schedule that later in your non busy time. Whatever you charge would be worth it to me. Ty for your videos.
If you're doing cash method your records do not have to be as detailed. Yes my consultations open back up after tax season in May 👍🏼
I didn't report inventory in 2022. I used the exemption that doesn't require it.
I want to report my inventory for 2023. Is that going to be a problem since I won't have an "ending" inventory on record for 2022?
I guess I could file by mail and include an explanation?
Great video! How difficult would it be to switch from accrual to the cash method. Seems like cash method could save you on taxes since you get to deduct it before sale.
It can definitely save you big in the first year but after that it will tend to even out over time, because when the sale of that inventory rolls in there won't be an offsetting deduction to reduce that taxable income.
How does inventory removed due to expiration, donation, damage, etc, fit into the COGS calculation?
So as a reseller I have a ledger that I keep track of when I sell items, so my overall method is cash and my inventory is accrual?
If I’m understanding right, my end of the year inventory is 0 since I only account for it when I sell an item?
what should I do if I bought stuff to resale on ebay with cash from my personal account that is now closed as I don't bank with the same bank and can't log in to download statements for that withdrawal especially if I didn't use the full withdrawal to make cash purchases I have receipts of the items I purchased that were written up by me and signed for by the seller and a few bills of sales would those receipts alone be enough to work for filing or do I just have to consider those cost of goods at $0 since I don't have both statements and receipts
Thanks for the explanations. So, if using the "Lazy Accountant Method", which box do you check: Cash, Accrual, or Other?
Typically cash, because it refers to the overall method rather than inventory
@@notyourdadscpa Thank you! And thanks so much for the helpful videos!
If you are contributing personal items to business for sale this year but those personal items were purchased years ago, do you account for those personal items as "Purchases" in COGS this year? The purchase dates on the receipts won't match this year. Also, to contribute personal items to business for sale, is there any accounting entry or bookkeeping that need to be made? Or just keeping the receipt is sufficient. Thanks.
Yes exactly, you would put them on the purchases line. It's essentially the date when you contributed them personally to the business. The accounting entry would be a debit to inventory and a credit to owner contribution (equity)
If I’m deducting COG to get my net profit for each sale, am I still doing any of these methods? I feel like this accounting stuff is way over my head.
Can you ever switch from accrual to the cash method? My cpa has been using the accrual method but I’d like to switch to the cash method in the future.
Yes you just have to make sure to do an adjustment if necessary so that nothing gets missed or double counted
Hello great video! I recently started a business Selling tools on ebay. Majority of my inventory was personal items converted to the business, which I did not have receipts for since they were so old. I used the lower of cost or fmv to determine What the items are worth for inventory. the remaining minority amount of inventory was purchased Through a Estate sales at cost. On schedule C. I choose the lower of cost of fair market value For inventory , however I use an average cost Within This selection. Due to Many items are similar wrenches, sockets etc... For items I purchased at the Estate sales and personal items at fair market value. Is this okay to do?
Yes if you have internal guidelines that govern which types of items you use average costing for and which types of items you use individual costing for, as long as you are consistent 👍🏻
What if you sold on ebay the year before but didn't file taxes? What is your beginning COG? I'm sure alot of people have that issue. Thanks for the great video.
Just depends! You could always go back and report the prior year activity on an amended tax return. Or if it was all pretty much personal items sold at a loss you could choose to skip that. Then any inventory you came into the year with I would just add to the purchases line and still show beginning inventory as zero.
Would we just put the purchase date as January?
when you pay sales tax on the items you resale - can you add that to your cost of goods?? thanks a lot..
Yes 👍🏼
What happened if your inventory is old stuff your wife. Lots stamps, tools for stamping, dvds, old toys things like this. Thanks
Did you end of adding a 1099k video to your program?
1099ks for each platform are different and knowing what to deduct is a HUGE misunderstanding in E-commerce we need it
Yeah actually I nearly messed mine up- thank god I did some research last min. I would of wayyyy overpaid
Yes I definitely go through it there 👍🏻
How do you account for donated/unsold inventory?
If you already deducted it then there's nothing else you have to do, you can only get credit for it once. For donated inventory, if you use the method where you only deduct when sold, then you would just treat it as if you sold it for $0 and deduct it as part of cost of goods sold.
Thank you so much! @@notyourdadscpa
Good lord. Why is this soooo complicated
I know right....
Negative impact? Don't want my family to know I make money. I buy items cash no receipts. Item cost $20 and sell for $100 but I tell family cost was $80. Inventory just looks like a pile of junk to them. Where will I have problems?