Cost of goods sold for resellers: a plain-English guide.

Cost of goods sold (COGS) is the cost of the inventory you actually sold during the year. If you buy a lamp for $8 and sell it in March, that $8 is part of your COGS for the year. If it is still on your shelf in December, it is inventory, not yet a cost of goods sold.

The reason it matters is that COGS is subtracted from your sales before you calculate profit. On Schedule C it is worked out in Part III and carried to Part I.¹ Getting it right means you are taxed on what you earned, not on money you simply spent restocking. See the reseller glossary for related terms.

The IRS worksheet in Schedule C Part III follows a simple pattern:²

Beginning inventory is what you had on hand on January 1. Purchases are what you bought during the year. Ending inventory is what is left unsold on December 31. Whatever is not on the shelf at the end of the year is treated as sold.

Many resellers start the year with little stock and buy constantly, so the practical challenge is not the formula. It is knowing the true cost of each item and whether it sold.

Cost basis is what an item cost you to acquire. For a reseller, that generally includes:

• The price you paid, after any discounts or coupons you actually received.
• Freight-in and other costs of getting the inventory to you, when there are any.²
• Sales tax you paid on the purchase, in most cases, unless you bought it tax-free for resale. See the state sales tax guide.

Things that usually belong elsewhere on your return include shipping labels for outbound orders, marketplace fees, and packing supplies. They are business expenses, not inventory cost. Your Schedule C walkthrough shows where they go. A tax professional can tell you how to treat repair or cleaning costs on an item you resell.

When identical items are bought at different prices, you need a rule for which cost goes with which sale. Common choices include:

• Specific identification: you track the actual cost of each individual item. This is the most natural fit for one-of-a-kind thrift and estate finds.
• First in, first out (FIFO): the oldest purchases are treated as sold first.
• Average cost: the cost of a group of identical items is averaged. Some resellers use this for bulk goods.

Which methods you may use, and whether you must keep formal inventories at all, depends on your circumstances, including the size of your business.³ Pick one method, apply it consistently, and ask a tax professional before changing it or if you are unsure which rules apply to you.

Inventory costs are deducted as cost of goods sold in the year the items sell. You report it in Part III of Schedule C, and the result goes on line 4. Items you bought but have not sold stay in inventory and are not deducted yet.

In Strooply, the Taxes tab shows cost of goods sold for the period, the cost of the items that sold in it.¹

The IRS expects you to be able to back up your costs with records.⁴ Thrift stores give receipts. Garage sales and estate sales often do not. For those, a simple note works better than nothing: date, place, what you bought, what you paid. Take a photo of the tag or the haul when it helps. Whether a self-made record is enough for a given purchase is a question for your tax professional.

Keep records that show purchase date, seller, amount paid, and what the item is. Keep them for as long as they matter for your return.

Knowing the cost per item is what makes both your tax numbers and your business decisions reliable. It lets you see which items and sources are profitable, not just what you spent overall. Under the standard cost of goods sold method, it also means a partly sold lot does not deduct the whole purchase at once. See how to split one receipt across many items.

In Strooply, receipt scanning on Pro and Team plans reads the store, date, totals, and line items from a photo. You can then link each line to an item or a lot, and that cost flows into inventory and profit. Unclear totals or discounts are flagged for you to review rather than guessed. When an item sells, Strooply uses that item's cost in profit and in the cost of goods sold shown on the Taxes tab, which also shows how much of your COGS is backed by receipts and how much has none on file. Those figures are estimates for you to review with your records.