How do I get to cost of goods sold on the Schedule C
As you can see by what I have circled in red in the below image, you deal with inventory in the inventory section.
If 2019 is your first year dealing with inventory, then you Beginning of Year (BOY) Inventory balance *MUST* be zero. Your BOY balance for 2019 must match exactly your EOY Inventory balance for 2018. Since you did not deal with inventory in 2018, that 2019 BOY Inventory balance "MUST" be zero. Doesn't matter if you purchased that inventory 50 years ago either. Here's an example of how the Inventory/COGS section works.
BOY Inventory - What *YOU* paid for the inventory in your physical possession on Jan 1 of the tax year. This balance must match the prior year's EOY inventory. So if this is your first year dealing with inventory, the BOY inventory balance must be zero. There are no exceptions.
EOY Inventory - What *YOU* paid for the inventory in your physical possession on Dec 31 of the tax year. Again, it does not matter in what year you purchased that inventory.
Cost of Goods Sold (COGS) - What *YOU* paid for the inventory that you actually sold during the tax year. It flat out does not matter in what tax year you purchased that inventory either.
A few examples:
BOY inventory - $0
COGS - $5000
EOY Inventory - $5000
The above shows you started the year with no inventory in the business. Then during the year you purchased $10,000 of inventory and sold $5000 of that inventory leaving you with an EOY balance of $5000
BOY Inventory $5000
COGS - 3000
EOY Inventory $6000
The above shows you started the year with $5000 of inventory. Note that it also matches the prior year's EOY balance. Then during the year you purchased an additional $4000 of inventory bringing the total inventory for the year to $9000. Then during that same year you sold $3000 of inventory leaving you with an EOY balance of $6000.
The primary reason for a small business to use the invetory/COGS section (even though you're not required to) is so that you can account to the IRS where your money is going that you are deducting from your gross business income. As stated earlier, what *you* pay for inventory is not deductible until the tax year you actually sell that inventory. It flat out does not matter in what year you purchased it.
For your other equipment, those are items used by the business to produce or generate income. The are not inventory by any stretch of the imagination. They are business assets. Business assets and are reported as such in the business assets section. You are required by federal law to depreciate any business asset that is used in the production of income, be it directly or indirectly. So long as you enter these assets in the Business Assets section, and do so correctly, the program will take care of figuring the correct depreciation for you, for each year that asset is "in service" in the business.
