Ah, the famous dumb look when I ask that question when someone sits accross from me. The IRS determines that inventory is to be at cost basis unless you have a letter ruling from them. As was mention earlier the burdon of proof for you with the IRS is entirely on you. If they don't believe you they will disregard what you have listed and take away your cost of goods deduction. What I did when I transferred my baseball cards from my collection to my business is that I maid a general listing with approximate value and I even took pictures of it. I still have collectables so if the IRS were to come back to me I could show that I spent this much on collectables and transfered the exact cost over thus having a wash sale (no profit or loss) on my collectable sale. This is generally not a red flag to the IRS if you are rasonable. Your best record keeping is to track what is going to the business. Do not put an Idaho state quarter into your inventory at a cost of $500. Unless it is a rare doble headed coin this will not fly. As for income the IRS states that ANY income you receive must be reported (yes I report all my eBay income). The magic numbers that people talk about is that if you have a profit of less than $400 you pay no self-employment tax, as a sub-contractor, independant seller, etc. if you are paid over $600 they should send you a 1099 and report it to the IRS.

Just a few things to think about and if you have any questions feel free to email me.

Ray Townsend
LM-5074-94

P.S. My email note of the day told me there were only 97 days until tax filing deadline. You get wierd emails as an accountant.