Yes. Inventory in manufacturing is raw materials. In a sales environment, it is the finished product.
Cost of
Goods Sold
If your business manufactures products or purchases them
for resale, you generally must value inventory at the beginning and end of each
tax year to determine your cost of goods sold. Some of your business expenses
may be included in figuring cost of goods sold. Cost of goods sold is deducted
from your gross receipts to figure your gross profit for the year. If you
include an expense in the cost of goods sold, you cannot deduct it again as a
business expense.
The following are types of expenses that go into figuring
cost of goods sold.
- The cost of products
or raw materials, including freight.
- Storage.
- Direct labor
(including contributions to pension or annuity plans) for workers who
produce the products.
- Factory overhead.
Under the uniform capitalization rules, you must
capitalize the direct costs and part of the indirect costs for certain
production or resale activities. Indirect costs include rent, interest, taxes,
storage, purchasing, processing, repackaging, handling, and administrative
costs.
This rule does not apply to personal property you acquire
for resale if your average annual gross receipts (or those of your predecessor)
for the preceding 3 tax years are not more than $10 million.
For more information, see the following sources.
- Cost of goods
sold—chapter 6 of Publication 334.
- Inventories—Publication
538.
- Uniform
capitalization rules—Publication 538 and section 263A of the Internal
Revenue Code and the related regulation
http://irszilla.com/business-expenses/cost-of-goods-sold.htm>
