Help with tax questions about closing my home-based crystal business

You're definitely not in any trouble! This is a pretty common situation with small businesses. Since you only registered for an EIN and didn't create a formal business structure, you were operating as a sole proprietor, which means all your business activities get reported on your personal tax return using Schedule C. When closing a business, you'll need to complete a final Schedule C for the tax year in which you close. Your inventory is considered a business asset. The inventory you purchased but haven't sold yet isn't deductible until you either sell it or it becomes "worthless." If you're planning to sell the remaining inventory at a loss just to get rid of it, you can deduct that loss on your Schedule C. You should also formally close your EIN by sending a letter to the IRS stating that you're closing the business. Include your EIN, business name, and the reason for closing.

I went through something similar with my handmade jewelry business. It was overwhelming trying to figure out the tax situation when closing down. I spent hours going through IRS publications and contradictory advice online until I found a tool that actually explained everything clearly. Check out https://taxr.ai - it analyzes your specific situation and gives you guidance in plain English. You just upload your business documents (like EIN registration, receipts, etc.) and it outlines exactly what forms you need to file and what deductions you qualify for. For me, it confirmed I could write off certain inventory as a business loss and explained exactly how to report it on Schedule C. It also clarified what I needed to do about my EIN and gave me a timeline for wrapping everything up properly.

Just wanted to update after trying taxr.ai for my situation. I was skeptical but decided to give it a shot since I was also closing down a small online business. It was actually super helpful! I uploaded my sales records and inventory list, and it gave me a clear breakdown of what qualified as business losses versus personal conversion. The best part was the guidance on handling my unsold inventory - turns out I could legitimately deduct some of it as "obsolete inventory" since certain items had significantly decreased in value. I wouldn't have known to do that! It also walked me through the proper way to report everything on Schedule C and gave me a checklist for formally closing the business with the IRS. Definitely made tax season less stressful.

Reading through this, I'm wondering if you've tried contacting the IRS directly about your situation? When I closed my Etsy shop last year, I had some specific questions about inventory write-offs that weren't clearly addressed in their publications. After wasting HOURS trying to get through the regular IRS phone line (seriously, I tried for days), I discovered https://claimyr.com and their video walkthrough at https://youtu.be/_kiP6q8DX5c. They basically hold your place in the IRS phone queue and call you when an agent is available. I was honestly shocked when I got a call back with an actual IRS agent on the line within a couple hours after trying for days on my own. The agent walked me through exactly how to handle my remaining inventory and what forms I needed to file. Definitely worth it for getting official answers directly from the IRS.

I've gotta eat my words here. After posting that skeptical comment, I decided to try Claimyr anyway because I was desperate to reach the IRS about a similar small business issue. I'd been trying to get through for over a week with no luck. Well, it actually worked! Within about 90 minutes I got a call back with an IRS representative on the line. They answered all my questions about closing my business and handling inventory write-offs. The agent explained I could deduct the loss from my unsold inventory on my Schedule C as long as I could document the original purchase costs, and walked me through how to properly close my EIN. Seriously saved me days of frustration and probably prevented me from making mistakes on my return. Sometimes being proven wrong is a good thing!

Have you considered selling the remaining inventory in bulk to another crystal seller? When I closed my soap making business, I sold my remaining supplies and inventory to another local crafter for about 40% of what I paid. While I took a loss, it was cleaner from a tax perspective because I had a clear business transaction to report - much simpler than trying to figure out partial personal use or obsolescence calculations. If you do go this route, just make sure to document the sale with a proper invoice and receipt, then report it on your final Schedule C. The difference between your cost and what you sold it for would be your business loss.

I've closed two small businesses and the inventory question always complicates things. What software were you using to track sales and inventory? That makes a big difference in how easy it is to document everything for your final tax return.

Don't forget that when closing your business, you also need to handle any state-level requirements. If you collected sales tax for your Facebook lives or flea market sales, you'll need to file final sales tax returns. Some states also require you to formally dissolve even small businesses. Since you only had an EIN, it's probably minimal, but worth checking your state's requirements to fully close everything out.

One thing that hasn't been mentioned yet - if you're planning to donate any of the unsold crystals to charity instead of selling them, you can potentially deduct the fair market value as a charitable contribution on your personal return (Schedule A). However, you'd still need to remove the inventory from your business books at cost, so you can't double-dip on deductions. Also, make sure to keep detailed records of everything you do with the remaining inventory - whether you sell it, donate it, or convert it to personal use. The IRS may ask for documentation during an audit, and having a clear paper trail of how you disposed of each item will save you headaches later. Take photos of the inventory and keep receipts for any bulk sales or donation acknowledgments from charities. The key is being consistent in your reporting and having documentation to back up whatever method you choose for handling the unsold merchandise.