If item purchased for resell but doesn't sell (disposed), does it lower the tax obligation?

[itolduandso]

I know this is not a tax forum and I should discuss with tax advisor, okay. But I am wondering how other people do this. I am talking about simple accounting, purchase inventory + other expenses as cost and total sales as revenue ... tax on the difference etc.

The question is, since I am technically not writing off inventory because I am not doing inventory, if the item does not sell and it is disposed, can I still consider the original cost of purchase of it as cost for tax purposes?

In other words, does it make a difference for tax purposes if the item actually sells for 0.01 dollar or it is disposed (no sale)?

[recped]

If you are using the cash method of accounting (sounds like a yes) then the moment you buy something for resale it's cost of goods.

"In other words, does it make a difference for tax purposes if the item actually sells for 0.01 dollar or it is disposed (no sale)?"

Yeah it makes a 1 cent difference!

[ilikehockeyjerseys]

It is my understanding that inventory is considered an asset until it is sold or disposed. 

You should keep track of your inventory for various reasons.

The simplified version is that you pay $10 for an item. You expense the $10 off when the item sells or when it is disposed. This will lower your income for tax purposes by the $10 the item cost.

Whether it sells or is disposed doesn't change that. If you sell it for 1 cent, it just means that instead of your income being affected by -$10, it is affected by -$9.99 ($10-0.01).

With that said, if you do dispose of inventory, I would keep a record of it in case you are audited. It's a lot easier to prove you sold something at a loss since eBay will have a record of the sale than it would be to prove the original item did in fact exist, and you disposed of it. I'm not entirely sure what would be required, but it would be a good idea to keep a PDF or print out of the original unsold listing. 

Keep in mind, I am not an accountant. You should assume that none of the above is accurate, it's just my own experiences for your entertainment only. You should go to an actual accountant if you need accounting advice. 

[byto253]

If you purchased the item for resell, but it did not work out so you dumped it and did not use it for personal use, that is a legit business expense.  

[itolduandso]

Yes, thanks to all for providing a comprensive response. Yes, I wan't sure if disposing the inventory without sale in cash accounting method allows to recognize cost of the item as expense. Thanks also for pointing out the importance of keeping some proof the item was offered on sale but didn't sell for auditing purposes, didn't think about that. So yes, now it's clear.