If I ship items to customers do I count the shipping as cost of goods sold or as a regular expense?

[hottie_balottie]

If I sell items online and ship them to customers, as the shipper of the items (not the receiver of the items), do I count the shipping postage cost as a regular expense or as a COGS. It seems to me that it would be a regular expense, but I want to make sure.

[LeeM · Accepted solution]

EDITED FOR CLARIFICATION

In your situation, the shipping expenses would be considered a normal/general business expense and not cost of goods sold.

Containers and packages that are an integral part of the product are a part of your cost of goods sold.

If they are not an integral part of the final product, their costs are shipping or selling (normal business) expenses.

For more information, you can reference the Line 39 other costs instructions in Chapter 6 (How to Figure Cost of Goods Sold) of the IRS Publication 334, Tax Guides for Small Businesses, linked to below:

https://www.irs.gov/publications/p334/ch06.html

[hottie_balottie]

I keep reading that shipping supplies (boxes, bubble wrap, etc) and shipping postage costs (USPS, UPS, etc) do not count toward COGS because these were not used in direct manufacturing of the item being sold. I guess the shipping costs don't matter too much because I don't spend it unless someone buys something, but as far as shipping supplies go, it seems like those would go under general business expenses.

Can you clarify?

[LeeM]

You are correct, the actual shipping supplies would be listed as a general expense. I will clarify my answer.

[smashmcgee]

Can you please give examples of what would vs would not be considered an "integral part of the final product" as it relates to shipping supplies? Thank you!

[hello5]

If this is accurate, why does QB Online have a default Account called "Shipping" as a subcategory of COGS, which states: "Use this account to track the cost of delivering products to customers or distributors"?? It would appear to be a mistake in the default chart of accounts...

[Btx1980]

I have a question related to original post: If in the past you had unknowingly included shipping fees into cost of goods sold on Schedule C of previous years' taxes, is this something that needs to be corrected in an amended return, or just something to do differently going forward? The actual numbers leave me with the same taxable income, just was wondering how to correct this (if needed) for past years. 

[ZoltanB45]

You would not need to amend the prior returns if you had entered it as COGS. An expense is an expenses and will not affect the bottom line. Now if we were talking about 2 different types of income, then I would suggest amending. Some states tax you differently on total revenue. That is not the case here.