up.

The hardest inventory to value is inventory that you used for personal use before you sold it on eBay, such as clothes you bought for your children that they have outgrown. Before you sell these items on eBay, you should research similar items to see what they have sold for on eBay or similar auctions. For tax purposes, the value of your inventory is the average selling price on the similar items you researched. Print out your research, and be sure to enter the average selling price on your inventory spreadsheet, in case the IRS comes knocking.

If you clean out your garage and list the items on eBay for sale, you cannot claim a loss on their sale. The amount used as your cost basis in inventory converted from nonbusiness use can be no greater than its fair market value at their time of conversion. You also must be able to prove the property’s cost or you may be denied any basis (you’ll have to report the entire proceeds as gain).

The most important thing to remember is to keep good documents. If the IRS audits you and you can't provide documents showing how much you paid for an item, they may claim that your cost basis is $0, which means you will pay tax on 100% of the sale price instead of just paying tax on the profit.

To your financial success,
Kristine McKinley

Article Source: http://articlecrazy.com

Kristine McKinley is a CPA and Certified Financial Planner®. For more information on eBay taxes, sign up for our free special report 'Tax Tips for eBay Sellers'.beaconfinancialtips.typepad.com/ebaytaxtips/2007/02/free_special_re.html

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