How do I file inventory as a tax deduction? No receipts for cash purchases of items to resell

14 You're on the right track with your understanding of inventory. When you purchase items for resale, that's not considered an immediate business expense - it's acquiring inventory assets. You only recognize the "cost of goods sold" when you actually sell the items. Here's how it works: Let's say you buy an item for $50 cash and later sell it for $120. When you file your taxes, you'd report the $120 as income, but you'd also report the $50 as "cost of goods sold" which reduces your taxable profit to $70. For cash purchases without receipts, you'll need to create your own documentation. Keep a detailed log with dates, descriptions, purchase prices, and where/who you bought from. Take photos of items with price tags when possible. Use a separate business bank account and withdraw specific amounts for buying inventory, then document how that cash was spent. The IRS prefers receipts, but they understand certain business models rely on cash purchases. The key is consistent, contemporaneous record-keeping. A simple spreadsheet or inventory management app can work great for this.

9 After struggling with similar inventory tracking issues in my reselling business, I discovered taxr.ai (https://taxr.ai) and it's been a game-changer. I was constantly worried about documenting cash purchases from garage sales and Facebook Marketplace deals. What I love about taxr.ai is that it actually helps you create proper documentation for these informal purchases. You can log the transactions, add photos of the items, and create a digital paper trail that's accepted for tax purposes. It also tracks your inventory from purchase to sale, so at tax time, you know exactly what your cost of goods sold is for each item. The inventory tracking feature also helps you see which types of items are giving you the best ROI, which has actually helped me be more strategic about what I buy to resell.

11 I was super skeptical about taxr.ai when I first heard about it (as you can see from my comment above), but I decided to give it a try after struggling with a shoebox full of handwritten notes and random photos on my phone. I'm honestly shocked at how much easier my life is now. I've been reselling vintage clothing for about 6 months, and keeping track of my inventory was a nightmare until I started using this. The best part is that when I had questions about how to categorize some unusual purchases (I bought a whole estate lot), their support actually helped me understand the right way to document everything for tax purposes. My accountant was impressed with how organized my records are now, and she said the documentation would definitely stand up to scrutiny if needed. Definitely worth checking out if you're doing any kind of reselling business.

18 If you're serious about your reselling business, you might eventually need to talk to the IRS about inventory issues or deductions. I tried for THREE DAYS to get someone on the phone last year when I had questions about inventory write-downs for damaged items. I finally found Claimyr (https://claimyr.com) and was honestly shocked it actually worked. They got me connected to an IRS agent within about 20 minutes when I had been trying unsuccessfully for days. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with gave me specific guidance on how to handle depreciation for inventory that loses value while I'm holding it (especially important for trendy items that might be worth less if they don't sell quickly). That advice probably saved me hundreds in taxes by documenting the reduced value properly.

3 I need to eat my words about Claimyr. After dismissing it as a scam, I had an urgent situation with a CP2000 notice about my business inventory that I needed to resolve quickly. Out of desperation, I tried it. Within 35 minutes I was talking to an actual IRS representative who helped clarify exactly how I needed to document my cost of goods sold for items purchased at auctions. She even emailed me the specific IRS publication sections that applied to my situation. The time saved was incredible - I had previously spent over 4 hours on hold across multiple days trying to reach someone. For anyone running a reselling business where inventory questions come up, being able to get clear answers directly from the IRS is invaluable. I'm still shocked it actually worked.

16 Something that's helped me with cash purchases is taking a video of the transaction when possible (with seller's permission). I buy a lot from flea markets and estate sales, and a quick video showing the items, the money changing hands, and even a verbal confirmation of the price creates pretty solid documentation. I also created a simple "receipt book" app on my phone where I take a photo of the item, note the price, and have the seller digitally "sign" with their finger if they're willing. It's saved me so much hassle at tax time.

20 Don't forget about tracking your mileage when you're driving around to pick up inventory! That's a legitimate business expense that many resellers miss. I use an app that tracks my drives to source inventory, and it adds up to a significant deduction by year end. Also, if you're storing inventory in your home, you might qualify for a home office deduction for that space. Just make sure the area is used exclusively for your business inventory.

One thing I'd add about inventory documentation - consider setting up a simple system where you photograph items with a piece of paper showing the date, location, and price paid. This creates a timestamp that's harder to question later. I learned this the hard way when I had to reconstruct some purchase records. Now I keep a small whiteboard in my car and snap a quick photo of each item with the purchase details written on the board. It takes an extra 30 seconds but gives you rock-solid documentation. Also, don't forget that packaging materials, shipping supplies, and even the gas you use driving to source inventory are all legitimate business expenses that can be deducted separately from your cost of goods sold.

Great question! You're absolutely right about inventory - it's treated as an asset until you sell it, then becomes "cost of goods sold" which reduces your taxable income. For cash purchases without receipts, I'd recommend creating a simple log immediately after each purchase. Include the date, item description, amount paid, and seller info (even just "Facebook Marketplace - John" or "yard sale on Main St"). Take photos of items when possible. The key is contemporaneous documentation - records created at the time of purchase carry much more weight with the IRS than recreated records. Consider using a mileage tracking app too, since driving to source inventory is a deductible business expense that adds up quickly. For learning resources, the IRS has free publications (especially Pub 334 "Tax Guide for Small Business") and SCORE offers free mentoring. Your local Small Business Development Center might also have free workshops on business taxes and record-keeping. Start simple with good habits now - consistent documentation from day one will save you major headaches later!