Schedule C for Resellers: Cost of Goods Sold, Inventory and Deductions
Schedule C for eBay and Facebook Marketplace resellers: cost of goods sold, beginning and ending inventory, mileage, supplies, home office and records to keep.
If you resell on eBay or Facebook Marketplace as a sole proprietor or single-member LLC, your business income and expenses land on Schedule C. For most resellers, the part that causes the most confusion is not the expense lines. It is cost of goods sold, and specifically the inventory you still have on the shelf on December 31.
This guide walks through how Schedule C works for a reseller, line by line where it matters, with a worked example. It is written in October 2026, which is the right time to set up your year-end count and records rather than reconstruct them in April.
This is general information, not tax advice. Confirm your situation with a tax professional.
How Schedule C is laid out for a reseller
The IRS Instructions for Schedule C are the source for everything below. The most recent published instructions as of October 2026 are for tax year 2025; the 2026 version usually arrives near year-end, so confirm line numbers then.
The flow is simple:
- Line 1, gross receipts: all your sales, including amounts reported on any Form 1099-K and cash sales that were not.
- Line 2, returns and allowances: refunds you gave buyers.
- Line 4, cost of goods sold: carried from Part III.
- Lines 8 to 27: your business expenses.
- Line 31: net profit or loss.
Your net profit is what gets taxed, both for income tax and self-employment tax. Every legitimate cost you can document lowers it.
Part III: cost of goods sold
Cost of goods sold (COGS) is the cost of the items you actually sold this year. It is not everything you bought this year. Part III gets there with an inventory formula:
- Line 35: inventory at the beginning of the year
- Line 36: purchases, less the cost of any items you took for personal use
- Lines 37 to 39: labor, materials and supplies, other costs
- Line 40: total
- Line 41: inventory at the end of the year
- Line 42: cost of goods sold (line 40 minus line 41), which goes to line 4
What counts as a purchase
For a reseller, purchases include the cost of inventory you bought to resell: the price paid at auction or for the pallet, buyer's premium, sales tax paid on the purchase, and freight or delivery to get it to you. Keep the invoice for every one.
A worked example
A reseller starts 2026 with $8,000 of unsold inventory at cost. During the year they buy $30,000 of pallets and auction lots, all in. On December 31 they count the shelves and find $10,500 of unsold items at cost.
- Beginning inventory (line 35): $8,000
- Purchases (line 36): $30,000
- Total (line 40): $38,000
- Ending inventory (line 41): $10,500
- Cost of goods sold (line 42): $27,500
Notice what happens if they skip the count and just deduct purchases: they would claim $30,000, not $27,500. That overstates the deduction by $2,500, and the IRS expects inventory to be accounted for. On the other side, a seller who forgets beginning inventory under-claims.
Ending inventory is not a deduction this year. It becomes next year's beginning inventory and is deducted when those items sell.
Valuing ending inventory
Most small resellers value inventory at cost. For pallets and lots, that means the allocated cost of each unsold item, which is why splitting lot costs per item matters all year, not only at tax time. Items that are damaged, unsellable or written off should not sit in ending inventory at full cost; talk to your tax professional about how to handle them.
The instructions also describe a small business exception: businesses with average annual gross receipts of $31 million or less may be able to treat inventory as non-incidental materials and supplies. Whether that fits your business is a question for your tax pro.
Common reseller deductions
Line 8: advertising
Promoted Listings fees and other paid ads.
Line 9: car and truck expenses
Auction pickups, thrift runs, post office trips and local Facebook meetups all count when they are for the business. With the standard mileage rate, 2026 has two rates. The IRS set 72.5 cents per mile for January through June, then raised it to 76 cents for miles driven on or after July 1, 2026 (see the IRS standard mileage rates page).
Example: 1,200 business miles from January to June ($870) plus 1,400 miles from July to December ($1,064) = $1,934. You need a log with the date, destination, business purpose and miles for each trip. Commuting does not count.
Line 10: commissions and fees
eBay final value fees, per-order fees, Facebook Marketplace selling fees and payment processing fees.
Line 18 and Part V: postage and shipping
The instructions include postage under office expense on line 18. Some resellers list shipping labels as a separate "other expense" in Part V instead. Either way, label costs are deductible. Pick one approach and use it every year.
Line 22: supplies
Boxes, poly mailers, tape, bubble wrap, labels, and small tools you use up during the year.
Line 27b and Part V: other expenses
Software subscriptions, storage unit rent if not on line 20b, and similar costs.
Line 30: business use of your home
If part of your home is used regularly and exclusively for the business, such as a room that is only inventory storage and a packing station, you may qualify. The simplified method is $5 per square foot for up to 300 square feet, a maximum of $1,500. A garage you also park in, or a dining table you pack on, generally does not meet the exclusive-use test.
AI Flip Ledger keeps a live draft of Schedule C lines 1 to 31, including Part III cost of goods sold, from your eBay imports, Facebook and cash sales, pallet cost splits, expenses and mileage log (with the 2026 split rate applied by date). It is an organized draft to take to your tax professional, not a filed return. If you get stuck, email the owner directly at [email protected]. A real person answers.
Records to keep
The IRS can ask you to support every number. Keep these for at least as long as your tax pro recommends:
- Sales records: eBay Transaction and Orders reports, Facebook Marketplace payout records, and a log of cash sales.
- 1099-K forms from every platform.
- Purchase records: auction invoices, pallet receipts, thrift receipts, with what was in each lot.
- Inventory count: a dated list of unsold items at cost on December 31, signed or saved as a file.
- Mileage log: date, destination, purpose, miles.
- Expense receipts: supplies, software, storage, equipment.
- Refunds and returns: which sales were refunded and for how much.
- Personal use: anything you pulled from inventory for yourself, at cost (it reduces line 36).
A year-end checklist for December
- Schedule your inventory count for December 31 or the closest day you can manage.
- Make sure every pallet and lot bought this year has its cost split across its items.
- Total your mileage log, split at June 30 and July 1 for the two rates.
- Download your eBay reports for the full year.
- Set aside cash for the fourth quarterly estimated payment, due January 15, 2027.
Frequently asked questions
Can I deduct all the inventory I bought this year?
Not directly. Purchases go into Part III, and only the cost of items you actually sold becomes cost of goods sold. Unsold inventory at year-end is subtracted as ending inventory and deducted in the year it sells.
How do I value ending inventory from a pallet?
Most small resellers use cost. Split the all-in pallet cost across the items (evenly or by expected value), then total the allocated cost of the items still unsold on December 31.
What mileage rate do I use for 2026?
72.5 cents per mile for business miles from January 1 to June 30, 2026, and 76 cents per mile from July 1, 2026 onward, as of October 2026.
Can I claim a home office for my reseller business?
Only for space used regularly and exclusively for the business. The simplified method allows $5 per square foot for up to 300 square feet.