TurboTax adds the difference in my inventory value from 1/1 to 12/31 into my COGS. My COGS should only be the amount I spent to create my product. Why is it doing that?

[tomturiano]

I did not spend anything on past books in 2018, but I did spend money on future books in 2018. Would that go into cost of purchases, even though those books are not published yet, and probably won't be published for a few more years?

[Anonymous]

if $7495 is the actual cost of the books sold than that should be cost of goods sold

you beginning inventory is $38,635

you spent an unstated amount for current year production  that amount, if any, should be purchases

$38535 + purchases - the $7495 cost of books sold should be the cost of your ending inventory 

if you spent nothing for purchases during the year, your ending inventory would be $31,140

cgs  section

beginning inventory   $38635

ending inventory  $31140

cost of goods sold $7495 which should appear on line 4 of schedule C

on the other hand say you spent $5,000 in 2018 for production costs

then 

beginning inventory   $38635

purchases $5000

ending inventory $36140   (38635+5000-7495)

cost of goods sold $7495

however, your ending inventory could be lower.     say $500 worth of books were destroyed by mold , water, whatever.

or say you threw out $500 worth of books because they were no longer salable

then you ending inventory would be $500 lower and the cost of sales would be $500 higher.  yes, i know, the $500 wasn't sold but this is how it works, terminology aside.  .

hope i've been helpful.  

[tomturiano]

Thanks TaxPro+40...this is getting clearer. So, even if my 2018 purchases are for future book production and have nothing to do with current books that I'm selling, I should still enter that amount (which was about $2700 in 2018) in "Cost of Purchases"? Am I correct that expenses entered as "Cost of Purchases" should only be for production costs (design work in this case) for books that I may someday (in this case, 2020) keep in inventory? Not for expenses such as shipping boxes, tape, etc?

[tomturiano]

Essentially, even though my 2018 investments (cost of purchases) are not material investments (they're just for design work), they contribute to the value of my inventory in the future, and so should be added as such?

[tomturiano]

Working with one accountant in the past, I was told to amortize those types of expenses and include them under miscellaneous expenses. So, my taxes have had like 30 different amortizing purchases of non-material investments, all at different stages of maturity, from 30 years of hiring designers and other similar help. Was that all a big mistake?

[tomturiano]

I would appreciate help reaching a conclusion on my question. Should I enter expenses for non-material services such as design work that will not contribute to my salable items until years in the future...in the "cost of purchases" area? Or should I amortize this type of expense somewhere else? thanks, TT

[Anonymous]

what method do you use to value closing inventory as indicated on schedule C Cost of goods sold section