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|Subject: Re: I am such a Wannabee!||Date: 3/1/2004 11:59 AM|
|Author: galagan||Number: 2043 of 5087|
I am annoyed at being accused of giving tax advice when I was not, then being nagged about my tax returns which are the business of me, the IRS, and my accountant, not SP (contrary to what he seems to think).
Let me politely suggest that you are not the only person who may benefit from a discussion of tax treatment. You are obviously entitled to do whatever you want to with regard to your taxes. However, others who might be tempted to create the same sort of business might prefer a more complete discussion of the topic.
IRS Publication 538 ( http://www.irs.gov/pub/irs-pdf/p538.pdf ) gives an excellent discussion of inventory and accounting methods for new businesses. Some relevant quotes:
Most individuals and many small businesses use the cash method of accounting. Generally, however, if you produce, purchase or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise.
[Certain] taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. [In general, these are businesses with less than $1 million of gross receipts annually. Principal business activity generally needs to have an NAICS code other than those for mining, manufacturing, wholesale or retail trade, or information industries.]
[Even] if you choose not to keep an inventory, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later.
Seems like there is substantial uncertainty either way - I would think an eBay business would have an NAICS code for retail trade, thereby rendering it ineligible for cash method. But I don't pretend to know enough about it.
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