@Mike9241 Thanks for your response! I am nowhere near $30m and don't have AFS so I believe I qualify for X and/or Y. I'm trying to figure out the "right" way/place to include inventory into TurboTax for Schedule C. As mentioned above, the options I am considering are:
1) Include under COGS section as "Purchases" with 0 beginning and 0 ending inventory balance
2) Include under COGS section as "Materials and Supplies" with 0 beginning and 0 ending inventory balance
3) Include under Other Expenses/Misc. Expenses as "Non-Incidental Materials & Supplies (TCJA)"
For X (NIMS method), I understand it should only be the inventory that actually sold (not all purchased inventory). For Y (according to taxpayer's accounting method, cash), I could include all purchases (regardless of sold/unsold). It seems X is more conservative and would more "clearly reflect income" but sounds like the exception under TCJA allows for either X or Y. That said, I think I would be more comfortable with X, however, in my case the purchases are finished goods, so I feel it would make more sense to go with option 1) and include inventory (sold) under "Purchases" vs. "Materials and Supplies" (I believe this is in line with what @ThomasM125 suggested above). The COGS number would be the same under option 1) or option 2) so it probably doesn't really matter, but since the IRS language specifically says "NIMS" I don't know if option 1) would raise any flags.
I prefer not to keep an inventory and sounds like I am not required to. So I think that means:
- For X, I would use my sales data and items sold to determine the COGS. For example, say I don't keep an inventory but I know I sold 5 items that cost me $10 each, so I will record $50 under "Purchases" or "Materials and Supplies", with $0 beginning and $0 ending inventory. (I've also seen this described as "lazy accounting method" for businesses that use accrual method for inventory.)
- For Y, if for example I paid $500 for all inventory purchases for the year (sold/unsold) so I would include all $500 as COGS ($500 under "Purchases" or "Materials and Supplies", with $0 beginning and $0 ending inventory) OR I could put the $500 in Expenses under "Supplies" or Other Expenses/Misc. Expenses as "Non-Incidental Materials & Supplies (TCJA)"
After reading through this thread again, it seems like there's some flexibility and it's not one size fits all. I guess I'm trying to understand if any of these methods/options above are totally off and that should definitely avoid. Thanks, all!!
