How do I handle inventory for my wife's reseller business? Determining what items to write off & when

The key distinction you need to focus on is business intent versus personal use. When your wife purchases items specifically for reselling, those are business inventory and the costs are deductible as Cost of Goods Sold (COGS) when the items sell. For personal items that later get sold, those are generally considered personal property sales, not business inventory. If she sells personal items at a loss (like your $60 sweater example that sells for $15), that's considered a personal loss which unfortunately isn't deductible. If she sells a personal item for more than she paid, technically that's a capital gain. Regarding donations of unsold inventory items that were purchased for resale, those can be deducted at cost as a business expense. However, donations of personal items would fall under personal charitable contributions (Schedule A) and would be valued at fair market value at the time of donation, not original cost. For the broken laptop scenario, if it was a personal item, you can't deduct the loss when selling it for parts. However, if she specifically buys broken electronics to resell parts, then it would be regular inventory with the cost being COGS.

After dealing with similar inventory headaches with my online reselling business, I started using taxr.ai https://taxr.ai to help sort through all my sales records and determine what was business inventory versus personal items. The tool helped me identify which items should be counted as COGS and which were personal property sales. What really saved me was their document analysis feature - I uploaded my purchase records and sales receipts, and it automatically categorized everything based on purchase patterns, timing, and price points. It even flagged items that were likely personal use based on how long I held them before selling.

I just wanted to follow up about taxr.ai since I decided to try it for my own reselling business. It's been a game changer! The platform automatically identified patterns in my purchases that I never noticed - like items I was consistently losing money on and personal items I was incorrectly counting as inventory. The best part was when it flagged several big-ticket items that I had purchased years ago for personal use but recently sold. It correctly categorized those as personal property sales rather than business inventory, which saved me from incorrectly claiming COGS deductions that might have raised red flags with the IRS. Really glad I saw that recommendation here - it's made tax prep for my side hustle so much simpler!

After struggling to reach the IRS for guidance on inventory issues with my similar reselling business, I tried using Claimyr https://claimyr.com to get through to an actual IRS agent. They have this service where they navigate the phone system for you and call you back when they have an agent on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was honestly skeptical it would work, but I had a specific question about converting personal assets to business inventory that I couldn't find a clear answer to online. They got me connected to an IRS representative in about 45 minutes (versus the 3+ hours I spent previously getting disconnected).

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it myself since I had a complicated question about depreciation for some equipment in my reselling business that I couldn't figure out. Not only did I get through to the IRS in under an hour (I had previously tried 4 times and never reached anyone), but I was transferred to a specialist who actually understood my situation. They explained exactly how to handle items that transition between personal and business use, including the depreciation recapture rules I needed to follow. The agent even emailed me relevant documentation afterward. I've been reselling for 5 years and this was easily the most productive interaction I've ever had with the IRS. Completely worth it.

For the inventory question, I found using a simple "intent test" helped me a lot. I keep a record (just notes in my phone) at the time of purchase indicating whether I'm buying something for resale or personal use. If your intent changes later, document when and why. This has saved me multiple times during tax season because I can prove what my original intent was rather than trying to reconstruct it a year later.

One thing to consider is that the IRS allows you to use different inventory accounting methods for tax purposes like FIFO, LIFO, or specific identification. For a reseller with unique items (not identical products), specific identification usually makes the most sense. This means each item you purchase for resale has its own tracked cost basis. So in your example, the $12 sweater sold for $65 would be $53 profit, and the personal $60 sweater sold for $15 would technically be a $45 personal loss (not deductible against business income).

This is such a common challenge for resellers! I've been dealing with similar issues in my own small business. One thing that really helped me was creating a clear separation between "business purchases" and "personal items that later get sold." For business purchases, I maintain detailed records from day one - photos, receipts, storage location, listing attempts, etc. These clearly qualify for COGS treatment when sold or charitable deduction when donated unsold. For personal items that later get sold, I treat them completely separately. Like your $60 sweater example - that's a personal asset sale, not business inventory. The loss isn't deductible, but it also doesn't get mixed up with your business accounting. The gray area items (bought for business but used personally first) are the trickiest. I've found the best approach is to "convert" them out of inventory when you start personal use, then treat any later sale as personal. Document the conversion with a note about fair market value at the time. For damaged items like your laptop, if it was personal property, selling for parts is still a personal transaction. But this is where having that clear intent documentation from purchase really matters - it establishes whether something was ever business property to begin with. The key is consistency in your method and keeping contemporaneous records of your intent. Don't try to retroactively categorize things based on what's most tax-advantageous!