Cost of Goods Sold for Resellers, Made Simple

If you buy products and resell them, cost of goods sold is the most important number on your tax return that nobody explained to you. It is what separates the money you collected from the money you actually made, and getting it right is the difference between paying tax on your profit and paying tax on your gross sales. The good news is the idea is simpler than the name makes it sound.

What cost of goods sold actually is

Cost of goods sold, or COGS, is what you paid for the specific products you sold this year. On Schedule C it gets its own section, Part III, and it comes off your gross sales before your other expenses do. The formula is straightforward: start with your inventory at the beginning of the year, add what you purchased, then subtract what is still on the shelf at year-end. What is left is the cost of what sold.

What counts and what does not

This is where resellers lose money by guessing. These belong in COGS:

• What you paid for the product itself.
• Inbound shipping and freight to get the goods to you.
• Import duties and tariffs on the products.
• Direct labor you paid someone to prep or assemble the goods.

And these do not go in COGS. They are still deductible, just as regular business expenses elsewhere on Schedule C:

• Outbound shipping to your customer.
• Marketplace and payment processing fees.
• Advertising and promoted listings.

Why unsold inventory is not a write-off

Here is the part that catches new sellers. You do not deduct inventory when you buy it. You deduct it when it sells. If you spend 5,000 dollars stocking up in December and none of it has sold by the 31st, that 5,000 is not a deduction this year, it sits in your ending inventory and becomes COGS in the year each item sells. Loading up on stock does not lower this year's tax bill.

A break for small sellers

Formal inventory accounting is a chore, so the tax code gives smaller businesses a break. If your average gross receipts are under a high threshold, in the tens of millions of dollars, you can use a simpler approach instead of full inventory accounting. Even under the simpler method, though, the cost of an item is generally recovered when it sells, not before, so the year-end timing still matters.

How Vuuv helps

COGS only works if your sales and your costs are tracked cleanly, which is exactly the problem when a marketplace pays you one lumped-together number. Vuuv is built for eBay and Amazon sellers, so your product costs, fees, and shipping land in the right places automatically. Pair this with our guides to eBay bookkeeping and what counts as a business expense and your Schedule C will reflect what you really earned.

This article is general information, not tax advice. Tax rules change and every situation is different. Confirm the details against current IRS guidance or talk to a qualified tax professional before you file.