**This is a re-post from We Sell on eBay
Again, I'm not a tax accountant. Read the instructions for yourself or consult a tax attorney. Yada, yada, yada....
Schedule C instructions
Page 2 of the Schedule C is for your inventory. I will be honest. I don't do this page correctly. I zero my inventory out at the end of every year, but I am going to walk you through this the way it is supposed to be done.
Line 33 - Method used to value closing inventory. Choose cost. This will be significantly easier than trying to determine what your inventory is currently worth.
Line 34 - Was there any change in determining quantities, costs, or valuations between opening and closing inventory? This will likely be No. If you filled this out last year and chose something other than Cost, and you are choosing Cost this year, then your answer here will be Yes. You'll also need to attach an explanation for why you changed methods.
Line 35 - Inventory at beginning of year. If you just started selling this year, then your answer here will be $0. If you already had inventory at the beginning of the year, you'll need to figure out how much you spent on it. I honestly don't know how we're supposed to figure that number out. This is why I zero out my inventory every year, so I can start each new year with $0.
Line 36 - Purchases less cost of items withdrawn for personal use. This is where you'll add in your inventory receipts. The cost of items withdrawn for personal use does NOT mean you include all the totals of your receipts, even if there are personal items on there. What this means is, you previously accounted for the $5 you spent on a pair of shoes intended for resale, but then you decided to keep them. You would subtract that $5 out, only if you already included it in your inventory purchase total.
Line 37 - Cost of labor. I honestly don't know what this is, and there is nothing in the instructions about it. I would have thought it would be if you paid someone to help you list, but I would think that would go on the Schedule C under Wages and Commissions paid. If you paid someone and didn't report it under Wages and Commissions Paid, then you should probably ask a tax accountant what line 37 is for.
Line 38 - Materials and Supplies. We already included our supplies on the first part of the Schedule C.
Line 39 - Other costs. If you had any other expenses related to your inventory that you didn't already account for somewhere else, enter them here. I can't think of any examples, because there has been a place to account for everything that I have thought of.
Line 40 - Add lines 35 through 39.
Line 41 - Inventory at the end of the year. You should go through your remaining inventory and total up what you spent on everything and enter it here. (Again, I put a zero here, showing that I sold everything that I bought during the year.)
Line 42 - Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4.
I just realized I did things a little bit out of order. You do need to finish Schedule C before you can do the Schedule SE. All the information is here - it's just out of order :)
All that's left is vehicle expenses, which we'll get to tomorrow.