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Keeping records of your Ebay business: Part 4
The base for any business to survive over the long term,
especially an ebay powerseller business, is to keep accurate
detailed records of everything pertaining to your ebay records.
In our recent articles of parts one through three, we touched up
on the basics of your financial records and how to start a
paper-trail system of your ebay powerseller business that is
both accurate for your personal books and for the IRS at tax
time.
In today's article you will learn the importance of tracking
your ebay business inventory and how to sell from that
inventory, whether as FIFO or LIFO. Running an ebay powerseller
business means that you are reaching a great point of success
with your business and in order to stay successful you will need
to account for your inventory meticulously.
You will need to know exactly what is on hand to sell to your
ebay customers and also when you will need to replenish that
inventory to replace the sold items. Unless your ebay
powerseller business revolves around providing digital products
(any product that is delivered via email or downloaded like an
E-book), then stocking your items and tracking them is of utmost
importance.
How to figure out your ebay powerseller business inventory
Technically speaking, "inventory" refers to any merchandise that
you hold in your home office or your business office that are
for sale to your customers. Not only does this include items
that you have on hand to sell to your customers but it also
includes any supplies that will become part of the item. For
example, if you are selling electronic equipment then any spare
parts like speakers, knobs, wires, etc. are part of your
inventory list.
How to report your inventory at the end of the year for taxes
When it comes time for you to report your income for the tax
man, you do not report your ebay powerseller items separately.
Instead, everything within your ebay stock should be lumped
together under the umbrella of "inventory".
In order to know what income to report, you should have recorded
what your ebay inventory was at the beginning of the work year.
This is called "opening inventory". Next, you will need to have
accurate records of what items that you bought during the year
and added to your ebay powerseller inventory. And of course,
your "closing inventory" is what is left at the end of the year.
Now that you have all three of the above categories accurately
recorded then you will be able to arrive at one key number. This
is called "your cost of goods sold". And this number enables you
to figure what you made on your sales for the year when
submitting this information in for tax purposes.
Understanding LIFO and FIFO
What do these two terms have to do with keeping records and
tracking inventory? Let's start with FIFO. This means "first in
- first out". In other words, let's say that that you resell
books as an ebay powerseller. In January, you purchased a set of
wholesale books that cost you $3.00 each. Then in May you
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purchased another set of books to resell that cost you $5.00
each. If you sold all of the books from the first set before
selling the second set, then those were "first in and first out"
(FIFO).
Next we have the term LIFO and this stands for "last in - first
out". With LIFO, you would sell all of your ebay powerseller
book items from the last stock purchase you made, before you
resell the first batch.
Which is best for your ebay powerseller business? That is up to
you. The one you select will invariably affect your cost of
goods sold, which, in turn, will affect your profit for the
year. The method you choose will depend on the trend in prices.
Simply choose a method that you can live with for years to come
and one that fits within the IRS regulations.
When prices are rising, then using LIFO will result in a larger
cost of goods sold so that closing inventory will be higher and
your reportable profits will be lower. But when prices fall, the
opposite result occurs - you'll wind up paying more taxes with
LIFO than if you'd used FIFO.
About the author:
Jason James website 'The Auction Resource Network' reveals his
inside secrets and sources that help him pocket over $10,000 a
month on eBay.
Claim your FREE 'Top 10 eBay Selling Secrets' eBook: www.auctionresourcen
etwork.com
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