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 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.
 

Jason James is a 10 year Internet marketing veteran and an eBay Seller of 4 years. His website "The Auction Resource Network" reveals his inside secrets, tips, and sources that help him pocket over $10,000 per month on eBay. His proven step-by-step system shows even users with little or no business experience how they too can make huge profits selling products at online auctions.

Visit his website for more free information