Found some helpful information on this topic (from ebay):
Let’s talk about what costs are considered part of the cost of the goods that you are selling.
Cost of the product or materials it takes to make the product, (includes freight when applicable)
The cost of the product is simply the amount of money you paid to purchase the item or items that you sell on eBay.
This can be the cost you pay as you go about each day currently buying items to sell on eBay; or
If this is an item that you bought several years ago for personal use, it is the cost you paid for the item at that time
If you cannot document what you originally paid for the item, remember that the IRS can disallow any cost basis for which you have no purchase receipt.
Cliff Ennico, a lawyer specializing in legal and tax issues for small business and a popular instructor at eBay University, has provided great insight to the legal and tax issues of COGS in his book, ‘The ebay Seller’s Tax & Legal Answer Book’. You might want to get a copy today.
If you are selling an antique or collectable for which you have no receipt to document your cost basis, be sure to consult with your tax advisor. If you did not purchase the antique or collectable, how you obtained it would help in determining your basis. Remember to always keep records of how you determined your cost basis in case of an audit.
If you are selling ‘used’ items you have bought in the past, you might want to look on eBay for what a “used” item exactly (or very similar) to what you have is currently selling for on eBay and use that as a cost basis.
The important thing in using this method, do not be over aggressive in your cost basis calculation as the IRS may want documentation of how you arrived as your basis for the cost calculation.
I recommend that, if you do not have a receipt for the purchase of the item, you should document in your records how you arrived at your cost basis. Using our KeepMore.net e-Document Storage tool to scan and store the documents you used for the cost basis calculation will help you store those documents in a safe and secure manner.
If you purchase your items as you travel throughout the day at garage sales and flea markets, it might be difficult to get a receipt for price of the items that you purchase. You may want to keep a supply of receipt books and put the date, location, description and amount you paid for the items you buy. You might want to take a picture of the item as additional documentation of where you bought the item and the condition of the item when you bought it. You might want to get a copy of any flyer or poster available to document the location of sale. You can get blank receipt books at any office supply store. Again, use KeepMore.net’s e-Document Storage tool to scan and store the receipt and other documents for proof of purchase in case of an audit.
Tax Tip! – Don’t forget to record your mileage as you travel around purchasing the items you sell on eBay.
