Understanding Amortization for Small Business - Does it Apply to My Reselling Business?

I'm pretty new to running my own business and honestly feel completely lost when it comes to taxes (I just use TurboTax and pray). What I'm trying to figure out is if I can legally reduce my tax burden because I'm spending way more on inventory than the actual profit I make each month. Here's my situation - I'm spending between $4-9k monthly on inventory for my resale business. My monthly profit from selling these items is only around $3300. The thing is, I don't sell everything I buy right away, and a lot of my inventory just sits in storage for months. So my real question is: Am I actually making that $3300 profit if most of it goes toward paying off business debt? And how does amortization factor into all this? Does it even apply to my situation? I feel like I'm missing something important that could help me pay less in taxes. Any advice would be super appreciated!

0 coins

18 comments

Freya Andersen

•8M

This is a great question about business accounting concepts! Let me break this down: First, amortization typically applies to intangible assets (like patents, copyrights, or business startup costs) that you spread the cost of over several years. What you're describing with your inventory is actually more related to "Cost of Goods Sold" (COGS) and inventory accounting. For a reselling business, you don't claim the full expense of inventory when you purchase it. Instead, it becomes an asset on your books until you sell it. Only when you sell an item do you recognize both the revenue and the cost of that specific item. This is why even though you're spending $4-9k monthly, you're only counting the cost of items actually sold when calculating your $3300 profit. As for debt payments - those are generally not tax-deductible expenses (the principal portion). However, the interest you pay on business debt IS usually deductible.

0 coins

Freya Andersen

•8M

You're right that it can feel unfair, but there's a good reason for this accounting method. If you buy $5000 of inventory, that inventory still has value - it's just in a different form than cash. You haven't "lost" the money; you've converted it to product assets. For inventory that sits unsold for a long time, you may be able to write down the value if it truly loses value (called "inventory obsolescence"). For example, if you have items that are damaged, outdated, or simply won't sell at their original cost, you can potentially recognize that loss in value on your taxes.

0 coins

Leila Haddad

•8M

I went through the exact same confusion with my small online shop last year! Spent weeks trying to understand all this tax stuff until I found https://taxr.ai which basically saved my sanity. What I love is that I can just upload my receipts and inventory logs, and it shows me exactly how to categorize everything properly for taxes - including tracking which inventory has been sold vs still sitting in storage. The system explains everything in plain English too, which was a lifesaver since I'm also not an accountant. It even flagged some business expenses I was missing and helped me understand how to properly track my inventory for tax purposes.

0 coins

Leila Haddad

•8M

It actually does help with amortization! You can input your startup costs and it walks you through what can be amortized vs what needs to be capitalized or deducted differently. It'll show you the differences between amortizing something like a patent versus expensing office supplies. Regarding accuracy, I was skeptical too at first. What convinced me was that it references specific IRS publications and tax code sections for each recommendation. My accountant was actually impressed with how it organized everything and said it saved him time during tax prep.

0 coins

Emma Johnson

•8M

Just wanted to follow up here! I ended up trying https://taxr.ai after seeing this thread and WOW - it was incredibly helpful for my situation. I uploaded all my messy business expenses and inventory purchases, and it correctly identified which startup costs could be amortized (like my initial legal fees) versus what was regular inventory. The system explained that for my situation, I could elect to deduct up to $5,000 of my startup costs immediately, then amortize the rest over 15 years. Something I had no clue about! It also helped me set up a proper inventory tracking system so I'm only claiming COGS for items I've actually sold. Honestly feel like I understand my business finances for the first time.

0 coins

Astrid Bergström

•8M

Hey, just want to mention that if you're feeling overwhelmed trying to get answers from the IRS about your specific situation, I used this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes when I needed clarification on amortization rules for my small business. I was seriously stuck on hold for HOURS before that trying to get through on my own. They have a video showing how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with was actually super helpful and walked me through exactly how to handle my inventory and startup costs properly.

0 coins

Astrid Bergström

•8M

They use a system that navigates the IRS phone tree and waits on hold for you. When they reach a real person, you get a call to connect with the agent. It's basically like having someone wait on hold instead of you doing it yourself. Totally understand the skepticism! I felt the same way. The reason it works is they use technology to dial and redial during optimal times and navigate all the phone prompts automatically. They're not doing anything you couldn't do yourself - they're just using software to handle the frustrating part.

0 coins

Omar Farouk

•8M

Ok I have to admit I was wrong about Claimyr. After posting that skeptical comment, I was still desperate to talk to someone at the IRS about my amortization questions, so I gave it a shot. It actually worked exactly as described. I got a call back in about 20 minutes, and was connected to an IRS agent who answered my specific questions about how to handle the expensive software I purchased for my business (turns out it should be amortized, not expensed all at once like I thought). Saved me from making a pretty big mistake on my taxes. Definitely worth it for the time saved alone since I'd already wasted hours trying to get through.

0 coins

Chloe Martin

•8M

Just to add something helpful to the original question about inventory and profit - remember that cash flow and taxable income are two different things! You might be cash flow negative (spending more than you bring in) while still having taxable profit. For your reselling business, you should definitely be tracking inventory properly. When you buy $4-9k of inventory, that's not an immediate expense - it's an asset. Only when you sell an item does it become an expense via COGS. This is why many businesses use the accrual method of accounting rather than cash basis.

0 coins

Chloe Martin

•8M

Cash accounting is when you record income when you receive payment and expenses when you actually pay them. It's simpler and many small businesses start with this method. Accrual accounting records income when you earn it (even if not paid yet) and expenses when you incur them (even if you haven't paid yet). For inventory-heavy businesses like reselling, accrual often gives a more accurate picture because it matches the expense of goods with the revenue they generate. This prevents situations where you buy a ton of inventory one year but sell it the next, which would distort your profit picture on cash basis.

0 coins