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Welcome and thank you for your question. I'll do my best to provide an informative answer. Please let me know if you need any clarification.
If you look at the 2011 Schedule C I think I can walk you through this. Go to page 2, part 3 of the Schedule C. Line 35 says "Inventory at Beginning of Year". Assuming the cost of your inventory at the beginning of the year was $10,000, you would report this amount on line 35. Assume for example you had no other purchases of inventory during the year. Lines 36, 37 and 38 would be zero. Then line 41 would show inventory at end of year of zero. In applying the math, your ending "cost of goos sold" on line 42 would be $10,000.
Now back to page one of the Schedule C. Your sales per line 1b would be $3,500. Your cost of sales (line 4) would be $10,000 as carried from page two. You would then have a gross loss of $6,500 (instead of gross income).
I hope this helps and please let me know if you need further clarification.
Our gross receipts or sales line 1b on schedule c for 2012 was $22,892. Our beginning inventory for 2012, line 35 was $7200. This is inventory only. Our equipment is not included, just parts we use to put trophies and plaques together. We purchased $6291 in more inventory for 2012 which is line 36. So normally we would add $7200 + $6291 and put $13491 on line 40. Our end of year and final inventory for 2012, line 41 is $6726. So line 41 - line 40 would be $6765 for costs of goods sold.
Now, we sold not only the closing inventory ($6726) but also the $3000 worth of equipment in business on ebay. The two together are worth $9726, so we lost a total of $6226. How do I get credit for the $3000 in equipment loss since it was not included in the yearly sales inventory.
Sounds like you have a good understanding of the inventory piece. By showing zero remaining inventory you would be expensing the closing inventory you sold of $6,726 through cost of goods sold.
Regarding the equipment, if you already deducted this when you purchased it (even if it was years ago), you would not be able to expense it again. This would be taking an expense for the same purchase twice, or as I call it, "double dipping".
If the equipment was never deducted, here is what I'm thinking; In your situation the equipment is like an inventory cost, not really a fixed asset. So it is as if your inventory was understated all along. You could either increase beginning inventory by $3,000 which would run the expense through cost of goods sold, or you could increase purchases by $3,000. The more technically correct way would be to increase beginning inventory. In accounting the term is a "misstatement". Your beginning inventory was misstated.
You want to avoid calling it "equipment" because equipment must be depreciated over the life of the asset, and if you missed out on the allowable depreciation you lose the deduction.
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