Tax Deductions for Resellers: Inventory, COGS, and Sourcing Trips

Whether you flip clearance finds on eBay, run an Amazon FBA operation, or source Costco pallets for a storefront, reselling is a trade or business, and its expenses are deductible under IRC § 162 like any other. You'll typically report it on Schedule C.

One caution before the deductions: the IRS distinguishes businesses from hobbies under IRC § 183. If your reselling loses money year after year and you can't show a profit motive — businesslike records, real time invested, adjustments when something isn't working — hobby-loss rules can disallow your deductions while still taxing your income. Keeping clean purchase records isn't just audit protection; it's evidence you're running a business.

This is the rule that surprises every new reseller: you don't deduct inventory when you buy it. Goods purchased for resale are inventory under IRC § 471, and their cost is recovered through cost of goods sold in the year each item sells:

Beginning inventory + purchases − ending inventory = cost of goods sold.

Buy $10,000 of product in December and sell none of it by year-end, and your deduction for those goods this year is zero — the cost carries into next year with the inventory. Small resellers (under the gross-receipts threshold of IRC § 448(c), which covers nearly everyone reading this) can use the simplified small-business method under § 471(c) and treat inventory like non-incidental materials and supplies — but even then, the cost is generally recovered when items sell, not when you stock up. The timing rule is the point: match the cost to the sale.

The home office deduction normally demands *exclusive* business use of the space — a bar most resellers' garages can't clear. But IRC § 280A(c)(2) carves out an exception specifically for inventory: if your home is the only fixed location of your resale business, you can deduct expenses allocable to a separately identifiable space you regularly use to store inventory or product samples — no exclusive use required.

In practice: the garage shelving units that hold your stock qualify even though your car and holiday decorations share the garage. Measure the storage area, allocate home expenses to it the same way you would a home office, and keep a photo of the setup with your records.

Goods bought for resale are generally exempt from sales tax if you present a resale certificate — register with your state, get the certificate, and set it up with the retailers you source from (both Amazon Business and Costco support tax-exempt purchasing programs).

If you do pay sales tax on inventory purchases, it isn't lost: it becomes part of the inventory's cost and flows through cost of goods sold when the item sells. Either way, the line-item purchase record is what proves the number.

Congress has changed the 1099-K reporting threshold repeatedly — after 2025 legislation it sits back at the long-standing $20,000-and-200-transactions level federally, though several states require platforms to issue forms at much lower amounts.

Don't let the form drive your filing. All reselling income is reportable whether or not a 1099-K arrives, and — the part that works in your favor — all your inventory costs, fees, and expenses are deductible whether or not anyone sends you paperwork. Resellers who skip reporting in no-form years lose the deductions and loss carryforwards that make the business tax-efficient, and create mismatch risk in years a form does arrive.

Reseller audits come down to purchase records: what did you buy, when, for how much, and was it inventory or a personal purchase riding along in the same cart? That last question is exactly the mixed-cart problem that Amazon orders and Costco runs create.

WriteOffCoach ingests your Amazon order history export and your Costco order and receipt PDFs, classifies every line item, and keeps the per-item evidence chain — dates, amounts, and the tax rule each deduction rests on — in a CPA-ready export. Your sourcing records stay defensible without a spreadsheet habit.