Inventory & COGS Receipts: A Reseller's Documentation Guide (2026)

Published: July 14, 2026 · Reading time: 7 min

TL;DR: If you buy goods to resell — on eBay, Etsy, Poshmark, Amazon, or at markets — you deduct them through Cost of Goods Sold in Schedule C Part III, not as ordinary supplies. That means keeping purchase invoices, freight-in (inbound shipping) receipts, and beginning- and end-of-year inventory counts, plus a record of anything you pulled for personal use. Unsold inventory is not deductible until it sells. A small-business exception simplifies the method but not the records. See Schedule C Part III cost of goods sold and inventory valuation on Lines 33–34.

Reselling has a documentation problem that service freelancers never face: your biggest deduction — the cost of the products you sell — is not a simple expense you write off when you pay for it. It runs through Cost of Goods Sold (COGS), a calculation that ties your purchases to your sales and to what is still sitting in your garage. Get the receipts right and COGS is straightforward; get them wrong and you either overstate your deduction (an audit risk) or understate it (leaving money on the table). This guide covers exactly which records a reseller needs.

Why resellers use COGS, not a plain expense line

When you buy a laptop for your consulting business, you deduct it as equipment. When you buy 40 laptops to resell, you cannot deduct them the moment you pay — you deduct each one's cost only when it sells. That is the logic of Cost of Goods Sold, reported in Part III of Schedule C (Lines 33 through 42) and carried to Line 4. The formula is simple:

Beginning inventory + Purchases + Freight-in + Direct labor − Ending inventory = COGS

Every input on that line needs a record. See our walkthrough of Schedule C Part III for how the lines connect.

The receipts every reseller must keep

1. Purchase invoices for inventory — Line 36

The receipt or invoice for each lot you buy: vendor, date, quantity, and cost. This is the backbone of your COGS. Wholesale invoices, Faire or Alibaba orders, liquidation-pallet receipts, and thrift/estate-sale slips all belong here. For online buys, save the order confirmation that itemizes each unit — see Amazon business receipts.

2. Freight-in / inbound shipping — Line 39

What you paid to get the goods to you is part of their cost. Keep the shipping and handling charges on inbound orders. Do not confuse this with shipping you pay to send a sold item to a customer, which is a separate operating expense on Line 27a.

3. Sales tax you paid on inventory

Sales tax you pay when buying inventory becomes part of the cost of those goods — keep it on the same receipt rather than trying to break it out.

4. Beginning- and end-of-year inventory counts — Lines 35 and 41

A dated record of what you had on hand January 1 and December 31, and its value. A simple spreadsheet with item, quantity, and cost basis is enough for most small sellers, but it must be contemporaneous — counted at year-end, not guessed in April. This is the record examiners ask for most, because ending inventory directly sizes your deduction.

5. Inventory removed for personal use, gifts, or damage

If you keep a product for yourself, give it away, or write off broken stock, it comes out of COGS. Note the item, date, and reason. Skipping this overstates your deduction.

The cash-sourcing problem

Resellers buy a lot at estate sales, thrift stores, garage sales, and flea markets — often in cash, often without a printed receipt. The IRS understands this, but the burden is still on you. At the moment of purchase:

• Photograph any handwritten receipt immediately (thermal slips fade — see faded thermal receipts).
• Create a contemporaneous log when no receipt exists: date, location, description of the lot, quantity, and amount paid.
• Tie cash to a withdrawal — an ATM record showing where the cash came from strengthens the trail.

A record made the same day is far more credible than one reconstructed later. For the general rules, see cash expense receipts and handwritten receipts and the IRS.

The small-business inventory exception

You may not have to keep formal accrual inventory accounting at all. Under a Tax Cuts and Jobs Act provision, a small-business taxpayer — average annual gross receipts under the IRS threshold (roughly $30 million, indexed each year) — can use the cash method and treat inventory as non-incidental materials and supplies, or simply follow how inventory is handled in its own books.

In practice, this often lets a small reseller deduct the cost of goods when they are sold, without maintaining full accrual inventory. But note the limits:

• The exception simplifies the method, not the recordkeeping — you still keep purchase receipts and a record of what sold.
• "Non-incidental materials and supplies" are still deducted when used or consumed (i.e., sold), not simply when purchased — so a December stockpile still is not an instant write-off.
• Your approach must match your books and be applied consistently.

When in doubt about which method fits your volume, this is a good question for a CPA. See cash vs. accrual accounting.

Shipping-in vs. shipping-out: keep them separate

Mixing these is the single most common reseller error. Both are deductible — but putting outbound postage into COGS distorts your gross profit and can misstate inventory. Keep two folders.

Unsold inventory is not a deduction — yet

The rule that trips up new resellers: you deduct the cost of goods only when they sell. Whatever is unsold at year-end is your ending inventory, carried into next year. Buying big in Q4 to "create a deduction" does nothing unless the items move. This is exactly why your end-of-year count matters — it is the number that determines how much of your purchases actually reduce this year's income.

Build the record as you buy

The resellers who breeze through tax season are the ones who log each lot at purchase and count inventory at year-end — not the ones reconstructing a year of flea-market buys in April. Photograph every receipt the day you get it, tag it to the right side of the COGS-vs-expense line, and keep a running inventory sheet. For the broader picture on how long to hold all of it, see how long to keep receipts and records, and for platform-specific help, our Etsy seller tax guide.

Frequently Asked Questions

What receipts do resellers need to document Cost of Goods Sold?

Keep the purchase invoice for every batch of inventory (vendor, date, quantity, cost), records of freight-in you paid to acquire the goods, and beginning- and end-of-year inventory counts with their value. Also document any inventory pulled for personal use, given away, or written off as damaged, since those reduce COGS. These records support Schedule C Part III (Lines 33–42), where COGS is calculated before flowing to Line 4.

Is shipping part of Cost of Goods Sold or a separate expense?

It depends on direction. Freight-in — inbound shipping to get inventory to you — is part of the cost of goods and belongs in COGS (Line 39 or added to purchases on Line 36). Shipping-out — sending a sold item to a customer — is a separate operating expense, usually on Line 27a. Keep both, but categorize them differently, because mixing them distorts gross profit.

Do small resellers have to track full inventory, or is there an exception?

There is an exception. A small-business taxpayer with average annual gross receipts under the IRS threshold (roughly $30 million, indexed) can use the cash method and treat inventory as non-incidental materials and supplies, or follow their own books. This often lets small resellers deduct cost of goods when sold rather than keeping formal accrual inventory. You still need purchase receipts and a record of what sold — the exception simplifies the method, not the recordkeeping.

How do I document inventory I bought for cash at estate sales or flea markets?

Keep the best record you can at purchase. Photograph any handwritten receipt, and when there is none, create a contemporaneous log: date, location, description of the lot, quantity, and amount paid. A dated photo of the items plus an ATM-withdrawal record strengthens the trail. Same-day documentation is far more credible than a tax-time reconstruction.

What happens to inventory I don't sell by the end of the year?

Unsold inventory is not deductible yet. You deduct the cost of goods only when they sell; whatever remains on December 31 is ending inventory, carried into next year. COGS equals beginning inventory plus purchases minus ending inventory. A December stockpile is not an instant deduction — keep the count records that prove your ending-inventory figure.

Authoritative References

• IRS — Schedule C (Form 1040) Instructions — Part III, Cost of Goods Sold
• IRS — Publication 334, Tax Guide for Small Business
• IRS — Inventories (Publication 538, Accounting Periods and Methods)
• IRS — Recordkeeping for Small Business
• IRS — Gig Economy Tax Center

Track inventory and receipts without the spreadsheet chaos

CentSense makes reseller recordkeeping simple. Snap a photo of a wholesale invoice, a liquidation-pallet receipt, or an inbound-shipping charge and our AI receipt scanning reads the vendor, date, subtotal, and tax, then tags it so your Cost of Goods Sold stays separate from your operating expenses. At tax time, export a CPA-ready CSV that keeps your COGS inputs and your Line 27a selling costs cleanly apart.

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This article is educational and not tax or financial advice. Inventory accounting has nuances specific to your business — consult a qualified tax professional about your situation.