Question

Cost of Goods Sold problem

Forum|Forum|2 years ago
March 6, 2024
2 replies
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I don't understand the logic in Part III Cost of Goods Sold on Schedule C. I know that Cost of Goods Sold (COGS) is what I paid/materials used for the inventory I sold during the tax year. I make scarves and my raw material is yarn.

Line 35&40: my opening inventory was $1800, using a raw materials cost basis.

Line 41: my closing inventory was $3200. (I made a lot that I didn't sell yet.)

I had sales of $2500 with a cost basis of $1400.

So I calculate $3200 - $1800 = $1400 COGS. This matches what I thought.

HOWEVER in TurboTax, line 42 subtracts line 41 from line 40 so the math is $1800-$3200 = negative number = $0 COGS. What am I doing wrong??

Also can anyone explain what Line 38 Materials & Supplies means? I spent 30 minutes with an IRS agent and he could not find any documentation on the meaning of the line. (How is that possible!)

A

Anonymous_

Employee

@BrooklynCarol wrote:
What am I doing wrong??

Just at first blush it appears as if you're not entering how much you paid for the material you bought during the year (i.e., your purchases).

T

ThomasM125

To arrive at cost of good sold, you take beginning inventory, add purchases and then subtract ending inventory. As mentioned by @tagteam , you are missing your purchases/materials. Materials and supplies is the cost of goods you purchase to manufacture what you sell, yarn in your case.

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Critter-3

FYI ... small businesses with less than a million dollars in revenue can skip using the COGS section completely and simply deduct the costs as supplies each year.