How do I get to cost of goods sold on the Schedule C

Here are instructions for accessing the inventory and cost of goods sold section within TurboTax:

1. Within your Federal Return, click the Income & Expenses tab at the top of the screen.
2. Select to Edit or Add the Self Employment business you are working on
3. Select that you want to work on Expenses for this self-employed business
4. Select Inventory.  You will then be brought to screens where you can enter your beginning and ending inventory values, as well as the cost of inventory purchased during the year to calculate your cost of goods sold.  All of this information will then be reported on your Schedule C.

You don't have to report inventory, but you can't deduct the cost of unsold inventory.

So, if you report cost of goods sold, you must reduce it by the amount of your ending inventory.

If you report it as supplies, don't deduct the cost of inventory until it is sold.

If you are a small business taxpayer, you can choose not to keep an inventory, but you must still use a method of accounting for inventory that clearly reflects income.

"If you account for inventories as materials and supplies that are not incidental, you deduct the amounts paid to acquire or produce the inventoriable items treated as materials and supplies in the year in which they are first used or consumed in your operations.”

IRS Publication 538

Unused inventory has not been used or consumed in the business and is therefore not deductible as an expense.  

@HavaWorkman

How do I get to cost of goods sold on the Schedule C

As you can see by what I have circled in red in the below image, you deal with inventory in the inventory section.

If 2019 is your first year dealing with inventory, then you Beginning of Year (BOY) Inventory balance *MUST* be zero.  Your BOY balance for 2019 must match exactly your EOY Inventory balance for 2018. Since you did not deal with inventory in 2018, that 2019 BOY Inventory balance "MUST" be zero. Doesn't matter if you purchased that inventory 50 years ago either. Here's an example of how the Inventory/COGS section works.

BOY Inventory - What *YOU* paid for the inventory in your physical possession on Jan 1 of the tax year. This balance must match the prior year's EOY inventory. So if this is your first year dealing with inventory, the BOY inventory balance must be zero. There are no exceptions.

EOY Inventory - What *YOU* paid for the inventory in your physical possession on Dec 31 of the tax year. Again, it does not matter in what year you purchased that inventory.

Cost of Goods Sold (COGS) - What *YOU* paid for the inventory that you actually sold during the tax year. It flat out does not matter in what tax year you purchased that inventory either.

A few examples:

BOY inventory - $0

COGS - $5000

EOY Inventory - $5000

The above shows you started the year with no inventory in the business. Then during the year you purchased $10,000 of inventory and sold $5000 of that inventory leaving you with an EOY balance of $5000

BOY Inventory $5000

COGS - 3000

EOY Inventory $6000

The above shows you started the year with $5000 of inventory. Note that it also matches the prior year's EOY balance. Then during the year you purchased an additional $4000 of inventory bringing the total inventory for the year to $9000. Then during that same year you sold $3000 of inventory leaving you with an EOY balance of $6000.

The primary reason for a small business to use the invetory/COGS section (even though you're not required to) is so that you can account to the IRS where your money is going that you are deducting from your gross business income. As stated earlier, what *you* pay for inventory is not deductible until the tax year you actually sell that inventory. It flat out does not matter in what year you purchased it.

For your other equipment, those are items used by the business to produce or generate income. The are not inventory by any stretch of the imagination. They are business assets. Business assets and are reported as such in the business assets section. You are required by federal law to depreciate any business asset that is used in the production of income, be it directly or indirectly. So long as you enter these assets in the Business Assets section, and do so correctly, the program will take care of figuring the correct depreciation for you, for each year that asset is "in service" in the business.

I have no cost of goods sold as I aquired stuff free over the years. What do I put on that line. And do I still use a schedule c