Hadn't seen this post before and figured I'd chime in, and I am an accountant.
First off, your actual question is inherently wrong. Inventory is an asset that gets shown on a balance sheet, not a P&L statement. When you sell items that are included in inventory, the cost basis of that inventory on company books is removed from the Inventory (asset) account classification and generally transferred to a Cost of Goods Sold account, an expense account that offsets the Sales amount of the item that is sold for and reported as such on the profit and loss statement.
The value of inventory is normally determined by its actual cost, which includes not only the actual purchase price for such items, but also any and all other costs incurred to acquire it, including freight and other delivery and ancillary charges. (So if you go and drive to the National to specifically and exclusively look at and buy cards for your business's inventory and end up buying out some dealer's entire stock and then subsequently pay to have everything shipped back to your home/office, you should technically include as your inventory cost not just what you actually paid the dealer for his cards, but also the costs to travel to and from the National, as well as the shipping charges incurred to get everything back to where you keep your inventory.)
For financial statement purposes for a business, inventory is required to be shown at the lower of its cost or fair market/realizable value on the company books. But that is for book purposes only and is not the same for tax purposes. For tax purposes you value inventory at it actual cost, until sold. For tax purposes you would only be able to deduct a reduction in the FMV of inventory when you finally sell or get rid of that inventory.
In the case of a person who decides to take something that was originally personal assets of theirs, like baseball cards, and then put them into a business making the cards inventory, you would generally be able to transfer the cards into the business as a tax-free transfer or contribution. This assumes you end up owning or controlling the business immediately after the contribution of your cards to the business as inventory. The value/basis of the cards you contributed as inventory is treated as your equity or basis in the business then. The cost basis value you initially use to value the cards should be the actual historical costs you incurred to originally acquire the baseball cards you owned personally. If you haven't kept, good, complete, detailed records of what you spent for the cards as well as any other costs incurred to acquire them, as another poster said, try to go back and recreate as best you can what you have paid for the cards you are starting the business with. Gather and keep any and all actual records you do have that can substantiate any part of the cost/value of your cards, and then try to document whatever else you think should be included in the inventory cost as best you can. if you were to subsequently get questioned about the tax basis of your inventory by the IRS, they could disallow anything you can't actually document or prove, but as long as you attempt to recreate the costs you did incur to originally buy the cards and can offer some reasonable arguments or other supporting data or information, the IRS could give some benefit of the doubt and allow you to have reasonably estimated some portion of you taxable basis in the inventory. You do the best you can under the circumstances. As a tax professional, I never advise anyone to try to take advantage of the IRS audit lottery, but if you face facts, the IRS is so overworked and understaffed these days, unless you are a real pig about it and use some over the top, completely wrong numbers and reporting when actually preparing and filing your tax return, the chances of actually getting picked by the IRS for an audit are pretty much nil.
Now as I stated before, the total cost/value you determine that you originally paid for the cards should then be used as the initial taxable cost/basis of you inventory. There is one hitch though. If you personally paid more for the cards than they are currently worth when you go to transfer/contribute them into the business as inventory, you have to write down the inventory value to the FMV of the cards at the time of transfer.
You can't just buy a card personally and when you see the value drop significantly, say a few years later, decide to form a business and transfer it into the business and then sell it at a tax deductible loss. As a personal collectible, when you sell a baseball card you've held for at least a year at a gain, it is considered taxable income to you at a maximum tax rate of 28%. You don't really get long term capital gain treatment or tax rates on the sale of personal collectibles, it just never gets taxed at a marginal tax rate higher than the 28% ceiling. However, if you sell the collectible at a loss instead, that personal loss is NOT tax deductible nor can you technically offset it against taxable gains from other collectibles sold. So the IRS isn't about to allow someone that bought a collectible years ago and has seen the value of it go down just go ahead and decide to suddenly create a business to transfer the collectible to at their cost so they can then sell it at a taxable loss. The IRS makes you mark the tax basis/cost of the inventory you are contributing to the business down to its net realizable or FMV at the time of the transfer into the business.
So looking at and determining the current FMV of your cards is something else you have to look at and calculate when putting personally owned baseball cards into a business and suddenly making them inventory. And for tax purposes, once the cards are put in the business, any gain on their sale generates ordinary taxable income that gets taxed at whatever tax rate you end up at based on whatever tax bracket you're in. There is no longer any max 28% tax rate in effect. That 28% max rate is only for personally owned collectibles that are sold for a gain that were held for a year or more at least.
There are still a lot of different issues and details that can be involved in starting up a business with personally donated inventory like you're suggesting. This is just a rough, general overview in trying respond to your original question. Good luck.
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