I would suggest that the answer to the original question should be simpler: Yes, you need to figure out the cost for the inventory that you sold during the tax year. Period. What confused me about your answer is why you would bring in inventory into the picture. As you said, "But I can only deduct from the current tax year's income, the cost of what I actually sold in that tax year." COGS is as simple as that. The questioner has only one calculation to make: "How much did I pay for the items I sold last year." Am I missing something? The reason why I came to this answer, is because I had a question of why TT includes Inventory beginning and end in its COGS step-by-step calculation. For example, at start of 2017 I had Inventory of $18,000, at end I had $11,000. I had COGS of $336,000. That $7,000 in vanishing inventory is already included in my COGS. Yet TT added $7,000 to my COGS, making it $343k. To correct that (and maintain fidelity with QB), I just zeroed out beginning and ending Inventory. This is my first year with TT (always used a CPA), so I'll need to watch out to make sure this causes no issues with my Balance Sheet.
