You can enter these expenses with Other Expenses or Supplies. Cost of Goods (COGs) is not a necessary entry under the Tax Cuts And Jobs Act (TCJA) unless your average income is above $26M for 2021.
As a reminder, after the passing of the Tax Cuts and Jobs Act (TCJA), small business taxpayers are exempt from the requirement to account for inventories (COGS). For tax years beginning in 2019 and 2020, these simplified tax accounting rules apply for taxpayers having inflation-adjusted average annual gross receipts of $26 million or less (known as the gross receipts test).
A small business taxpayer is a taxpayer that:
- has average annual gross receipts of $25 million or less (indexed for inflation) for the prior 3 tax years, and
- is not a tax shelter.
The cost can be deducted as materials or supplies or you can continue to use the same method you have been using to better reflect your income and expenses for the business as the product or materials are used against the income that is actually received for them.
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