Items withdrawn for personal use

[Strongsilence-CPA]

What is the reason for disclosing items withdrawn for personal use on a Schedule C?  My client is a vitamin reseller and sells them to customers.  AND she needs to use them for personal health.  How does it help my client to disclose the amount withdrawn for personal use?

[jharvey]

The input for "Cost of items for personal use" is there as a reminder to ask taxpayers if they used any of their business purchases for personal use so those amounts can be removed from cost of goods sold, Schedule C, page 2, line 36 which says "Purchases less cost of items withdrawn for personal use".

The two entries of purchases and cost of items for personal use are merely netted together before carrying to the Schedule C. The personal use items aren't actually disclosed to the IRS anywhere. They are just removed from the computation as they are not valid business related purchases.

[Strongsilence-CPA]

Thank you Jharvey.

I noticed that when I reviewed the COGS detail that the personal use items are not disclosed.

I appreciate your help. 

This client is 82 years old and sells vitamins and has had 3 losses and 2 years of profits ($7 and $500) in the last five years.  Their activities show me that they are self-employed and profit seeking but I want to keep the IRS out of their cross hairs. For 2023, it is tempting to lower the COGS to show a profit.

[Strongsilence-CPA]

I wrote that they have shown me activities that convince me that they are self-employed. But behold and lo, in today's CPA letter from the AICPA is an article about bias.  Excerpt:

says cognitive bias in accounting can occur when professionals unintentionally favor information that aligns with their preconceived beliefs or judgements, potentially compromising the integrity of financial statements.

It is possible that I have a bias toward the perception of that she is self-employed. Maybe she truly is a hobbyist. I'll have to dig deeper.

[qbteachmt]

It's bigger than COGS.

If you buy products for a reseller business, you are often paying wholesale. You also are bypassing sales taxes, usually you have a reseller license.

That way, you sell at markup and your end user customer pays the sales taxes.

So, removing business product for personal use is subject to Use Tax. You can't run those purchases through the business, because they are not used in the course of the business. Your vendors would also expect you to separate your purchases, so that personal use from their purchase is a sale to you as End User. This is how you are supposed to manage this, if you really want to show you are "in business."

A perfect example is a dog boarding operation. They have pets, too, and they are supposed to segregate personal and business. Or, a child care operation; their personal family doesn't get to eat from the food bought for the child care often through a USDA program.

Because those are fraud.

[Strongsilence-CPA]

That is a great and useful summary TGB.

Shaklee is strict and educates its people. It's all on the up and up.

[qbteachmt]

"Shaklee is strict and educates its people. It's all on the up and up."

Ooof. Depends on where you stand on the 13 level pyramid.