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I sell ClickBank.com's products, do I have "inventory" for Schedule C-EZ tax purposes??

by AsherPhilips
6 replies
Hi Warriors who live in the USA

I started my online business in late January of this year.

Basically, I promote ClickBank.com's products (they are the merchant). For some products I am an affiliate, for others I am the vendor, but in both cases ClickBank.com is the official merchant. I get paid directly by ClickBank.com.

I had my first visit with an accountant the other day, and she said she needed to do more research to see if I would qualify to file a Schedule C-EZ next tax year. The main sticking point is whether or not I carry any inventory.

To use a Schedule C-EZ, you basically need to meet these rules:

- Had business expenses of $5,000 or less.
- Use the cash method of accounting.
- Did not have any inventory at any time during the year.
- Did not have a net loss from your business.
- Had only one business as either a sole proprietor.
- Had no employees during the year.
- Are not required to file Form 4562.
- Do not deduct expenses for business use of your home.
- Do not have prior year unallowed passive activity losses.

I meet all of those, except for the question of carrying inventory.

Are there any other people here who sell ClickBank.com's products who can give me some feedback about the inventory issue? Has your accountant told you that you have "inventory"?

Thanks
#cez #clickbankcom #inventory #products #purposes #schedule #sell #tax
  • Profile picture of the author Rob Thayer
    I think they're talking about physical inventory here. As an affiliate of digital products, you have no inventory. It would be like a consultant who sells knowledge. You can't quantify it.
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  • Profile picture of the author Sfrew
    You probably need a new accountant if they are confused over what inventory definition includes -- that is IRS 101. After many years of business law practice, I can tell you that there are lawyers who do business law (or any area of alw) enough to be conversant with it and lawyers who do whatever walks in the door. There are accountants who keep books and their are accountants that do a lot of business tax work. They are all good people, but you want to do business with the ones who do enough work for businesses like yours to offer sound, practical advice without having to pay for their basis education (aka research). Not all research is basic, and there is a difference between research, and "just checking to make sure", but you should not spend money on folks who don't know your line of business. And, no, this is not a self-serving promo -- I am not available for representing outside clients these days.
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  • Profile picture of the author Spencer Haws
    No this is not inventory. And yes, your accountant should probably be fired for not knowing that.
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  • Profile picture of the author AsherPhilips
    Thanks for the responses so far.

    Following on what you wrote Sfrew, I really do feel like this might be me paying for someone to get more familiar with online digital business.

    Basically, my research has led me to strongly feel that downloaded e-books (PDF files) and software (zipped EXE file and DLL's) would not be considered "inventory" at all.

    I'm pretty sure I made it clear to the accountant that none of this was shipped in shrink wrapped boxes to the customer. The customer pays ClickBank.com, and then they are allowed to download the purchase (either an e-book or a software application).

    She sort of undermined my confidence in this belief, and so that's when I decided I should post and ask somewhere like here where there are a lot of entrepreneurs who work with ClickBank.com and who might have had to deal with this inventory question.

    So is it reasonable to assume (outside of some really far out IRS interpretation of what inventory "is" for Schedule C-EZ) that e-books and software that is downloaded after purchase (not shipped in a box) isn't "inventory"?

    Thanks a lot, this thread is really eye opening and helpful to me and hopefully to others
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  • Profile picture of the author Rob Thayer
    Even if Clickbank sold products in shrink-wrapped boxes and mailed them out to customers, it wouldn't matter -- you still carry zero inventory. It would be like using a dropshipper. They carry the inventory, you only act as a salesperson and make commissions on your sales. But in the case of Clickbank, there is no inventory at all... they're selling electrons.
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  • Profile picture of the author seasoned
    Inventory is INVENTORY! PHYSICAL GOODS that YOU have that can be SOLD!

    Unless you heppen to be one of the MERCHANTS(NOT AFFILIATES) that happens to have PHYSICAL inventory, the idea that your being with clickbank means you have inventory is just DUMB! Get a new accountant! THAT one sounds like an idiot!

    And this has NOTHING to do with the internet!

    Do you have stuff that you have purchased to sell, that can be considered a PHYSICAL asset? If so, then THAT is inventory! It is priced at cost! That means that stuff YOU produce may even be not considered inventory! Basically, they want to tax you for CASH value of your business.

    Steve
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