Entering your inventory will not show as an expense on your Schedule C.
Inventory is used to determine the Costs of Good Sold. Your beginning inventory will be whatever your ending inventory number was on December 31, 2020. The formula is beginning inventory plus purchases minus ending inventory. This gives you the cost of goods sold. The Cost of Goods Sold is subtracted from your gross income. It is not additional income. Costs of Goods Sold are not taxable.
It is correct to report Square payments for products purchased as income. Costs of Goods Sold is the expense for the purchase of the product. Square payment should be credited to inventory or the appropriate expense account.
To figure Cost of Goods Sold in Self-Employed
- Go to Inventory/Cost of Goods Sold and click Start or Update.
- Say Yes, I have inventory to report.
- Answer the question about how you value your inventory.
- Enter the inventory at the beginning and end of the year.
- Enter on the next screen the costs that you had for the year in purchasing or making your inventory.
- The cost of goods sold is figured automatically and put on the second page of your Schedule C. It is equal to Purchases for the year + beginning inventory – ending inventory.
- That number goes to page 1 of your Schedule C, on line 4.
- Line 4 gets subtracted from line 1, gross receipts,
- This equals your gross profit, which is line 5 of your Schedule C.
After the Inventory is entered look at Page 1 of Schedule C, Line 4. This will be the net result of the Costs of Goods Sold.
Part I Income
- Line 1 is your Gross Receipts.
- Line 2 would be any returns or allowances that you have
- Line 3 is the difference between Line 2 and Line 1
- Line 4 is the Cost of Goods Sold
- Line 5 is the difference between Line 4 and Line 3.
- Line 6 enter any other income you might have
- Line 7 is your Gross Income.
The Cost of Goods Sold acts as a wash of your costs from income. Your expenses are then subtracted from the Gross Income. Line 31 is the net profit/loss from the business. If Line 31 shows a profit, this is the taxable amount. If Line 31 is a loss, there is no taxable consequence from the busines.
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