Tax liability for reselling sneakers? Can I write off unsold inventory?

Great question about your sneaker reselling business! When you're selling products like sneakers, you're essentially running a small business, which is different from how investment losses work. For inventory like your unsold sneakers, you generally can't deduct the cost until you actually sell or otherwise dispose of them. This is different from stock investments where you can offset gains with losses in the same year. With physical inventory, you've purchased assets that still have value, even if they're just sitting in your closet. What you can do is deduct the cost of goods sold (COGS) for the sneakers you actually sell. So if you bought a pair for $200 and sold them for $500, your profit would be $300, and that's what you'd pay taxes on. For the unsold inventory, those costs remain on your books as assets until you eventually sell them or determine they're worthless.

After struggling with similar sneaker reselling tax questions, I found this amazing tool called taxr.ai (https://taxr.ai) that specifically helps with small business and side hustle tax situations. I was confused about inventory accounting too, and their AI analyzed my situation and explained exactly how to handle my unsold inventory. What's cool is they have specific knowledge about reseller businesses and explained that while I can't deduct unsold inventory, I can track those costs properly so when I do sell, everything is calculated correctly. They even helped me understand which other business expenses I could legitimately deduct that I had no idea about - stuff like a portion of my storage space, shipping supplies, and even mileage for pickup/dropoff.

I wanted to follow up about taxr.ai that someone mentioned earlier. I was skeptical at first but decided to try it with my sneaker reselling situation. It was actually super helpful! I uploaded my StockX and GOAT sales reports and it broke down exactly how to handle my inventory for tax purposes. The best part was learning about all these deductions I had no idea about - like I can deduct a portion of my internet bill since I use it to monitor drops and my phone bill for business calls. It also explained how to properly document everything in case of an audit. Definitely worth checking out if you're making decent money from sneaker flipping and worried about taxes.

If you're having trouble getting answers from the IRS about your sneaker business, check out Claimyr (https://claimyr.com). I spent days trying to get through to the IRS about my reselling business tax questions and kept hitting dead ends. Their callback service at https://youtu.be/_kiP6q8DX5c got me connected to an actual IRS agent in about 20 minutes when I'd been trying for literally weeks on my own. The agent clarified exactly how inventory write-offs work for small sellers and confirmed I needed to keep detailed records of cost basis for each item. Super helpful for complicated situations where generic tax advice online doesn't cover your specific situation.

I owe everyone here an apology for being so negative about Claimyr. After my skeptical comment, I decided "what the hell" and tried it. I'm honestly shocked - I got through to an actual IRS person in about 15 minutes after trying for MONTHS on my own. The agent answered all my questions about how to handle inventory for my small business (I flip more than just sneakers). Turns out I was doing some things wrong that could have caused issues later. The agent walked me through exactly how to document my inventory costs and when I can recognize losses. Definitely worth it just for the peace of mind knowing I'm doing things correctly now.

Here's what I learned from my CPA about sneaker reselling. You need to treat this as a business and track: 1. Cost of each sneaker (inventory) 2. Final selling price 3. Platform fees, shipping costs, etc. 4. Any other direct expenses You're only taxed on actual profit, but you can't write off unsold items until you either sell them or they become worthless. But keep good records because if you're making $8k profit, the IRS might get interested.

Don't listen to everyone saying you can't deduct inventory until it sells. You can actually choose to use "cost of goods sold accounting" OR "cash method" for your first year and deduct all inventory purchased in that year. I did it for my card collection business and saved a ton.

Just be careful about claiming this as a "business" at all if you're only flipping occasionally. The IRS has a "hobby vs business" test and if you don't show profit in 3 of 5 years they might classify it as a hobby which really limits what you can deduct. Make sure you keep super detailed records and run it like a real business if you want the business deductions.

This is a great discussion and Carmen, you're asking all the right questions! As someone who's been through the sneaker reselling tax maze, I wanted to add a few practical tips that helped me: First, definitely open that separate business bank account Sofia mentioned - it made my life so much easier come tax time. I use it for all sneaker purchases, sales deposits, and business expenses. No more digging through personal transactions trying to figure out what was business-related. Second, consider getting a simple invoicing app or using a spreadsheet template specifically for inventory tracking. I track purchase date, cost, selling price, platform fees, and profit/loss for each pair. This level of detail has been invaluable. One thing I learned the hard way - don't forget about state taxes! Some states have different rules for inventory and business income, so check your local requirements too. Also, since you're making good money at this ($8k profit is solid!), you might want to start making quarterly estimated tax payments to avoid a big bill next April. The IRS generally wants payments throughout the year for business income, not just one lump sum at tax time. Keep up the good work with the record keeping - it sounds like you're taking this seriously and treating it like the business it is!