Question

Are subcontractors COGS for a General Contractor?

Forum|Forum|4 years ago
March 17, 2022
2 replies
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We are a general contractor, and often hire other companies as subcontractors to complete portions of our projects. Are those expenses considered COGS on our return? It is technically a direct labor and materials cost to the project.

TurboTax Business Windows

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GeorgeM777

No, it does not appear that the wages you pay the subcontractors would be included in cost of goods sold. Cost of goods sold only includes the expenses that go into the production of a product or service you sell (e.g., wood, screws, paint, labor, etc.). When calculating cost of goods sold, do not include the cost of creating products or services that you don’t sell.

In your case, the project does not appear to be a product or service that you are selling. Therefore, your subcontractor expenses would probably be characterized as general labor costs.

@passj

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passjAuthor

The project is a product/service though. As an example, if I am building a new structure, I hire a concrete company to do the foundation. They have a fixed contract for labor and materials that are directly incorporated into the project/new building.

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ThomasM125

That would be considered a component of cost of goods sold in my opinion, as it is a direct cost of production. In other words, the cost is directly associated with a job as opposed to being an overhead expense like office wages.

There is a separate line for the cost of labor on a schedule C and corporate tax returns for the labor component of Cost of Goods Sold. It belongs there.

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NathanB541

I would argue yes, they are. If the intent of the general contractor is to construct a building and sell it, then the labor that he contracts to help construct the building would be included in COGS.