Sourcing Products for 6-Figure Brands on eBay in 2025

Introduction

Sourcing products the right way can make or break your eBay business. A 6-figure brand is built not just on great listings but also on smart sourcing practices backed by clear financial records. In 2025, with increased IRS scrutiny and digital tracking, your sourcing strategy must be both profitable and compliant.

Tax Codes That Affect Inventory & Sourcing

• IRC § 61(a): Requires reporting all gross income, including online sales
• IRC § 471: Details inventory valuation methods like FIFO or cost method
• IRC § 162(a): Allows deduction of ordinary and necessary business expenses
• IRC § 263A: Applies to capitalization of inventory costs for certain sellers
• IRC § 6001: Requires maintaining supporting documentation for deductions and inventory

IRS Forms Relevant to eBay Sellers Sourcing Products

• Schedule C (Form 1040): To report business income and expenses
• Form 1125-A: Required for corporations to report cost of goods sold
• Form 4562: For depreciation on tools or equipment used in sourcing
• Form 1040-ES: For estimated quarterly tax payments
• Form 1099-K: Issued by payment processors when income exceeds $600

Example: Building a 6-Figure Brand Through Smart Sourcing

Seller: Nina, a U.S. eBay seller specializing in home organization products

• Gross Sales in 2025: $160,000
• Inventory Cost (COGS): $70,000
• eBay/PayPal Fees: $10,000
• Shipping: $8,000
• Supplies and Marketing: $7,000
• Net Profit: $65,000

Nina tracks her inventory using the FIFO method and keeps supplier invoices, batch numbers, and item codes. Her bookkeeping system separates personal from business expenses and she files quarterly estimated taxes. She deducts legitimate expenses under IRC § 162(a) and reports her income using Schedule C and Form 1040-ES.

Step-by-Step Guide for IRS-Compliant Product Sourcing

Select your sourcing strategy

• • Wholesale, liquidation, retail arbitrage, or private label
  • Use suppliers that issue formal invoices

Maintain accurate purchase records

• • Log every SKU with purchase date, cost, quantity, and vendor
  • Save both digital and physical copies

Choose an inventory valuation method

• • Most small sellers use the cost method or FIFO
  • Stay consistent each year as per IRC § 471

Document and deduct all sourcing expenses

• • Shipping, packaging, sample costs, supplier fees
  • Deduct under IRC § 162(a)

Make estimated tax payments

• • Calculate your net income each quarter
  • Use Form 1040-ES to stay penalty-free

Keep up-to-date with IRS reporting requirements

• • Include COGS on Schedule C
  • Maintain detailed records under IRC § 6001

File your annual return accurately

• • Use Schedule C to report profits
  • Attach Form 4562 for equipment deductions if applicable

Conclusion

Sourcing products is more than just finding deals. It’s a financial and compliance strategy that supports long-term success. In 2025, IRS compliance begins with clean records, accurate COGS tracking, and intentional sourcing. Build your 6-figure brand on a foundation that scales with tax-smart sourcing decisions.

Call to Action

Want to ensure your sourcing and inventory strategies are IRS-compliant and optimized for growth?

Schedule a meeting with Anshul Goyal, CPA EA FCA   a U.S.-licensed Certified Public Accountant, IRS-authorized Enrolled Agent, and cross-border tax expert. He helps American businesses and Indians in the U.S. manage IRS compliance, business growth, and tax efficiency.

• Schedule a meeting: https://calendly.com/anshulcpa/
• Email: anshul@kkca.io
• Website: www.kkca.io

About Our CPA

Anshul Goyal, CPA EA FCA, is a U.S. Certified Public Accountant, IRS Enrolled Agent, and Chartered Accountant with 15+ years of experience. He leads Kewal Krishan & Co., providing tax strategy, e-commerce compliance, and international taxation support. He has helped over 2,000 clients and saved more than $200 million in taxes.

Disclaimer

This blog is for informational purposes only and does not constitute tax, legal, or accounting advice. Please consult a licensed tax professional regarding your specific situation.

FAQs (Top 5 High-Searched Questions)

1, Can I deduct inventory I purchase for resale on eBay?
Yes. Inventory is deductible as Cost of Goods Sold (COGS) under IRC § 471 and should be reported on Schedule C.

2. What if I source from overseas suppliers like Alibaba?
You can still deduct the cost if properly documented. Include import duties and shipping as part of inventory cost.

3. Do I need to track each product separately?
Yes, you should keep records for each item purchased including supplier name, date, cost, and SKU.

4. What inventory method should I use for taxes?
Small sellers typically use FIFO or cost method under IRC § 471. Consistency is important.

5. How do I report inventory on my tax return?
Use the COGS section of Schedule C and maintain supporting records under IRC § 6001.