What records should a reseller keep for taxes and audits on inventory?
Updated
Keep proof of what you bought, what you paid, what you sold and what's left on the shelf. That means supplier invoices, proof of payment, shipping and customs papers, sales records and inventory counts. The IRS says records that support income or deductions should be kept until the period of limitations runs out, which is generally three years from filing, with longer periods in some cases. This is general information, not tax advice. Ask your accountant what applies to you.
Why inventory records matter
The IRS defines inventory as items you buy and resell to customers. If you buy goods for resale, you generally need to value inventory at the start and end of each tax year to work out cost of goods sold (IRS Publication 538). Weak records make it hard to support those numbers if you're questioned.
The IRS doesn't require one specific record-keeping system. It says to use whatever clearly shows your income and expenses.
What to keep for each purchase
- Supplier invoice. Name, date, items, quantities, unit prices, total.
- Proof of payment. Bank statement line, wire confirmation, card statement. The IRS lists canceled checks, credit card slips and invoices as support for inventory costs.
- Purchase order or contract, if you have one.
- Shipping documents. Bill of lading or air waybill, packing list.
- Import records. Customs entry, duty and broker invoices, freight and insurance bills. These form part of your landed cost. CBP also has its own record-keeping rules for importers: under 19 CFR 163.4, records related to an entry generally must be kept for five years from the date of entry.
- Receiving record. What actually arrived, and any shortages or damage.
What to keep for sales and stock
- Sales invoices and payment records.
- Sales tax documents, such as resale certificates you collected from buyers or gave to suppliers.
- Inventory counts. A dated count at least at year end, with how you valued it.
- Returns, write-offs and adjustments, with the reason.
- Serial numbers or IMEIs for high-value items like electronics or watches.
How long to keep records
IRS guidance for income tax records, in general terms:
- 3 years from filing for most situations.
- 6 years if you leave out income that is more than 25% of the gross income on your return.
- 7 years if you claim a loss from worthless securities or a bad debt deduction.
- Indefinitely if you don't file a return or file a fraudulent one.
- At least 4 years for employment tax records.
Keep records on property you own until the limitation period runs out for the year you dispose of it. Many accountants suggest keeping inventory and import records longer than the minimum.
Make it easy on yourself
- One folder per order. Invoice, payment proof, shipping and customs papers together.
- Use business accounts only. Run purchases through a business account or card, not personal ones.
- Name files consistently. Date, supplier, invoice number.
- Back up. Cloud storage plus a copy.
- Reconcile monthly. Match bank and card statements to invoices.
Where Shield fits
Shield doesn't give tax advice. It gives importers, wholesalers and resellers a US business account, a business credit card and supplier payments, so inventory spend runs through business accounts and leaves a payment record. Statements and payment confirmations can sit alongside your invoices.
FAQ
Are digital copies okay? The IRS treats electronic storage systems under the same requirements as paper records. The system must be able to index, store, retrieve and reproduce the records in legible form (IRS Publication 583). Check with your accountant for the current rules.
Do I need receipts for small purchases? Keep something that shows what, when and how much. Ask your accountant for your threshold.
What if I get audited? Your records are the main evidence. Share only what's asked, and bring your accountant in early.
Next step
To see how Shield helps resellers pay for inventory, visit Shield business credit cards.