Cash Based Accounting for eBay Business: Handling Inventory, COGS, and Donations on Schedule C

This is super helpful, but I'm a bit confused. If I'm tracking with FIFO and removing donated items from COGS, doesn't that mess up my accounting? Like, if I bought 10 identical items for $10 each, then donate 2 of them, how do I account for the $20 I spent on those items? It seems like I'd be "losing" that expense.

For the FIFO tracking, you're right that you need to account for those costs properly. When you remove donated items, you're essentially transferring that cost from a business expense to a personal charitable deduction. So in your example, the $20 spent on those two items would no longer be part of your business COGS, but would instead become the basis for calculating your charitable contribution value. For record-keeping, you'd want to document the original cost of the items donated, the date purchased, the date donated, and the fair market value at the time of donation. This creates a clear audit trail showing the transfer from business inventory to personal donation.

Does taxr.ai handle the specific situation with donations from inventory? I've been tracking everything in Excel and it's becoming a mess, especially separating personal donations from business expenses.

I'm looking at their site now. Do they integrate with eBay directly or do I need to download my transaction history first? I have hundreds of transactions and doing this manually would be a nightmare.

It handles donations from inventory perfectly - it can separate the cost basis from fair market value and show you exactly what goes on Schedule C versus Schedule A. The system is built specifically for situations like this where things fall into gray areas between business and personal. Their system can import directly from eBay if you authorize the connection. Otherwise, you can upload CSV files of your transaction history. I had about 500 transactions last year and it processed everything in minutes. It also maintains the audit trail which is super important if you ever get questioned about mixing cash accounting with inventory tracking.

Wait, you actually got through to the IRS? I've been calling for days about my Schedule C questions. How does Claimyr actually work? Sounds too good to be true honestly.

I'm skeptical. The IRS basically never answers phones these days. Even if you got through, would they actually give specific accounting advice? I thought they just tell you to consult a professional.

The service works by using their system to navigate the IRS phone tree and wait on hold for you. When they reach a human, they call you and connect you directly to the IRS agent. I was skeptical too until I tried it. They don't give accounting advice per se, but they will confirm the correct procedure for filing specific forms. In my case, the agent walked me through exactly how to report zero inventory while still accounting for my costs on Schedule C. They also confirmed the donation process - that you need to remove those items from business expenses and document them separately for personal deductions.

Thank you for bringing that up! Do you have a specific format you use for your donation log? I'm realizing I've donated about $600 worth of inventory items this year (original cost) but only have basic receipts from the donation center.

I keep a spreadsheet with columns for: Item description, Date purchased, Original cost, Date donated, Organization donated to, Fair market value at donation, Receipt number/confirmation. I also take photos of the items before donating. For items over $250 individually, make sure the receipt from the organization specifically acknowledges that you received no goods or services in return for the donation. That specific language is required by the IRS. For your $600 worth, you'll definitely need to fill out Form 8283, which requires more details about the donated items.

Is the limit really $26 million? I thought small business exemptions kicked in at much lower thresholds, like $1-5 million range? That seems super high.

You're right to question that - I think there might be some confusion with different thresholds. The $26 million figure is for the Section 448 small business exemption, but for inventory accounting specifically under Section 471(c), the threshold is much lower. For most small businesses like eBay sellers, you can avoid formal inventory accounting if your average annual gross receipts for the prior 3 years don't exceed $27 million (adjusted for inflation - it was $26 million in recent years). But practically speaking, most individual eBay sellers are nowhere near this threshold. The key is that you qualify as a "small business taxpayer" which has its own specific definition in the tax code.