Tax Year Prior to 2020: Inventory Vs. Cost of Purchases.

[Scotdavid]

I run a very small photography business on the side. I'm reporting my income and expenses for the business on Schedule C. I carry a small inventory of framed photographs. TurboTax is asking for the value of my inventory which I know is the cost of the inventory (not the retail price). I've entered value of my inventory when asked.  Then it asks me the "cost of purchases" to make the product. Wouldn't that just be the same as the value of my inventory?  I'm confused at the difference.  For instance, My beginning inventory is valued at $3000. My ending inventory is $2000.  Wouldn't the cost to make the product be $3000 since that is what it cost me get the inventory? 

Thank you. 

[PaulaM]

When did you business begin? If you began in 2017, then your beginning inventory is the value at 12/31/16 or zero. Add your purchases throughout the year and subtract the remaining inventory to arrive at your cost of goods sold.

Ex: New business in 2017: Beginning inventory is 0 + Purchases of $3k - ending inventory of $2k = Cost of goods sold (cost of goods sold) of $1k.

You don't have to carry an inventory if this is your first year. Simply record your sales and your expenses to arrive at your net income.

[Dim]

Hi Paula,

This is my first year in business too. If I don't enter any inventory then in what category do I enter my raw ingredients, materials, and supplies?

Thank you

[KarenL]

@Dim It depends on the type of business, but the Materials and Supplies area of the Cost of Goods Sold section sounds like that would be correct for you.