What counts as cost of goods sold when you resell

Cost of goods sold is the money you spent on the things you sold. For a reseller it’s usually the biggest number on the return after sales, and the one most often guessed. Get it right and you pay tax on profit. Leave it out and you pay tax on every dollar a buyer sent you.

This guide explains what goes in, what stays out, the year it counts, and how to split one price across a bag of items. There’s a worked example from our own fee engine, and the IRS’s wording where it matters. It isn’t tax advice, but it’ll help you ask the right questions.

What is cost of goods sold for a reseller?

The IRS puts it in one sentence at the start of its chapter on the subject:

For a reseller, “goods” means your stock: the jacket from the thrift store, the box of games from a yard sale, the pallet from a liquidation auction. Their cost comes off your sales before anything else does.

What goes in

• The price you paid for the item, including any sales tax you paid when you bought it.
• Shipping or delivery to get it to you, such as freight on a pallet or the postage on an online lot.
• Costs to get it ready to sell that become part of the item, such as a repair or a replacement part.

What stays out

These are real costs, but they’re selling expenses, recorded separately rather than inside cost of goods:

• Marketplace fees: final value fees, commission, payment processing and ads.
• Shipping to the buyer: labels and packaging.
• Mileage to source and to ship. See the mileage deduction guide.
• Subscriptions and tools, including this one.

A quick test helps when you’re unsure. Did you spend it to get the item into your hands, or into the buyer’s? Getting it to you, like the price, the freight or a new zip, belongs to the item. Getting it to the buyer, like the label, the fee or the drive to the post office, is a cost of selling. Keeping them apart matters because they land on different lines of Schedule C. Hustl records each in its own column, so the year’s report can total them separately.

When does inventory count as an expense?

In the year it sells. This is the rule that surprises people. Spending $2,000 on stock in December doesn’t give you a $2,000 expense that year. Inventory is an asset until it sells, and its cost is deducted in the year it sells. Publication 334 adds that to work it out, “you must value your inventory at the beginning and end of each tax year.”

Schedule C lays the sum out like this. The figures are an example:

Lines 37 to 39 (labour, materials and other costs) are usually empty for a reseller. If you log each item’s cost when you buy it and mark it sold when it sells, you reach the same answer item by item: the cost of everything sold in the year. Hustl’s year-end report shows both, plus closing inventory (items bought by 31 December and not sold by then).

Why the cost line changes your tax bill

Here’s one sale, run through Hustl’s Poshmark fee engine, to show how much rides on a single receipt:

Poshmark knows the $95 and its $19 fee. It has no idea you paid $22. If that cost never makes it into your records, your books show $76 of profit instead of $54, and you pay tax on the $22 difference. Do that across a few hundred sales and the overpayment is real money.

Lots and bags: splitting one price across many items

A $20 bag of ten shirts, a $60 storage-unit box, a pallet. Each item still needs a cost, and there are two fair ways to give it one. Say the bag holds one jacket you expect to sell for $60 and nine tees you expect to sell for $10 each:

Splitting evenly is simple and fine when the items are alike. Splitting by expected value keeps each item’s profit realistic, so the jacket doesn’t look like a 2,900% return. Pick one approach and stick to it. What matters is that the costs add back up to what you paid.

Bulk lots and pallets

Bulk lots work the same way at a bigger scale. A $300 liquidation pallet might hold 40 items, some of them broken. Give the broken ones a cost of nothing if you bin them, and spread the $300 across what you can sell. If you sell the broken bits for parts, give them a small share instead. Write the split down when you unpack the pallet, not when the last item sells a year later, because by then you won’t remember what came in which box.

Shipping or freight on the pallet goes into the same pot. A $300 pallet with $85 freight is a $385 cost to spread, which is easy to forget when the freight is billed separately.

Things you already owned

Plenty of resellers start by selling their own things. If you’re clearing out your own wardrobe, your cost is what you originally paid, and most used clothes sell for less than that, so there’s usually no profit to report. Once you’re buying things in order to resell them, you’re running a business and the rules above apply.

Are there simpler methods for small sellers?

Sometimes. Publication 334 notes exceptions for small business taxpayers that can change how you work it out, such as treating inventory as materials and supplies. Whether they suit you depends on how you file, so ask a tax professional before switching methods. Whichever method you use, an item-level record of what you paid is what backs it up, and the IRS expects receipts and invoices behind your figures.

To see what a sale leaves after fees, try the eBay or Poshmark calculators. The record keeping guide covers the rest of what to keep, and our app or spreadsheet review helps you choose where to keep it.

Sources: IRS Publication 334, chapter 6, and What kind of records should I keep, checked 22 October 2026. This guide explains the concepts; it isn’t tax advice.