Goods purchased and reported on 1099

[Nelson6]

I am a remodeling contractor and have 1099 income reported. I purchase the items I use as in framing materials etc... Labor and materials are both reported on my 1099 as income. Where would I enter the materials part I purchased?

[AlanT222]

Your 1099 Income would be reported on your Schedule C, if you are self-employed.   You would report the entire amount as income.  You would then report your expenses as either supplies, materials, contract labor, to offset the amount of 1099 that was spent on those items.  

[Nelson6]

I understand that it would be reported as income and on Schedule C. The specific location was the issue. There is a section that has "Inventory and Goods Sold" but it referenced Raw Materials and Inventory. This is product I purchase on a per-job basis. I assumed that was the correct area and it sounds like that is what you are saying also. I just wanted to confirm that. I appreciate your time on this.

[DawnC · Accepted solution]

If you don't keep an actual inventory account and want to use the COGS account (you don't have to use it) - just use 0 for both the beginning and year-end inventory balances.  

Large businesses that purchase, produce, and/or sell merchandise to generate income usually keep inventory and use the accrual method of accounting.  The inventory's value at year-end is subtracted from its value at the start of the year (plus purchases made during the year) to arrive at the cost of goods sold (COGS) for that year.

However, if your business's annual gross receipts for the last 3 tax years averages out to $26 million or less per year, you can opt to use the cash method and expense the cost of inventory at the time it was purchased, rather than waiting until after it's been sold.

In TurboTax, you can report these costs in the inventory section as COGS or in the expenses section as supplies.  Either way, you don't have to report inventory but you do need to carefully track what you paid for the products, materials, and supplies that go into your inventory.

Reporting inventory costs in TurboTax Online

Reporting inventory costs in TurboTax Home & Business

[Nelson6]

If I input materials bought that are part of a 1099 I received under inventory or supplies I don't get the full value of that total. I can't find where to switch to the Cash method for that section. That method is what I use under my business profile section but it's not an option for the inventory section. If I list items under Supplies then it's asking for a detail of each item. Can that be put in as a total? I still don't receive the full value in the Supplies section either. I am a Remodeling Contractor and purchase items for projects that are listed on 1099s I receive.

[DianeW777]

Yes, you can add the cost of your purchases to supplies. After the passing of the Tax Cuts and Jobs Act (TCJA), small business taxpayers are exempt from the requirement to account for inventories.

A small business taxpayer is a taxpayer that:

1. has average annual gross receipts of $25 million or less (indexed for inflation) for the prior 3 tax years, and
2. is not a tax shelter.

Be sure to remove the figures from the inventory section.  Add the full amount from your 1099s as well as other sales if applicable.

[Nelson6]

So, I should enter it under Suppliers as a total? I ask because it specifically says items under $200 which they are but to show that I would have to itemize. That would be more than 1000 entries. That still doesnt give me the full value of the Cost of Goods Sold though?

[AlanT222]

Yes, enter the supplies as a total.  You do not have to enter each item separately.   Keep accurate records, however, as to how you calculated the total.  

[Nelson6]

Why will it not give me the full value of the amount entered? How can I make that happen?

[Nelson6]

Maybe it is giving me the full value and I don't think it is? It doesn't reduce the amount owed by that amount.

[DawnC · Accepted solution]

What do you mean when you say it is not giving you the full value?    You can total up the supplies and enter on one line item.    Ignore the refund meter right now and go all the way through the expense section and then look at the schedule C.     It won't reduce your tax bill by the exact amount of your supplies.   The supply expense is going to offset your 1099-MISC income which will reduce your net self-employment income on Schedule C.   But the meter won't update until you get through that section.    

[VolvoGirl]

If you add more expenses and reduce the Net Profit or increase the loss on schedule C it will reduce your total income and you may not be getting as many credits as before.   Also after you reduce your income to zero there is no more refund to get back but you still may owe for other things like self employment tax or the 10% early withdrawal penalty from 401k or IRA accounts.