topic How do i enter my business expenses ie supplies and materials purchased in Business & farm

How do i enter my business expenses ie supplies and materials purchased

rhonda5838 — Sat, 01 Jun 2019 15:21:57 GMT

I have a Bath & Body Care company that makes soaps, lotions etc. I have to CARRY an INVENTORY of all my oils, butters, packagings, labels etc in order to run my business. This can be quite expensive so I need to show this expense when purchased for the year even if it wasn't used to make a sold product yet.

1. What is COST OF PURCHASES mean vs. MATERIAL & SUPPLIES on the Cost of your goods section?

2. Where do I enter material & supplies purchased for the year regardless if it was used in a product and sold?

3. Do I show the value used to make the product I sold on the MATERIALS & SUPPLIES line? But if so where does the unused get entered (?2)?

4. Inventory value is an asset (+value) don’t I have to show how my inventory increased? If so where does the unsold material & supplies that I purchased for the year get imputed as an expense?

5. The line that says: OTHER COSTS TO PREPARE FOR SALES is this where the postage etc gets entered regarding the sale to ship it to the customer?

I was going to enter all postage expenses under OTHER BUSINESS EXPENSE but I am now curious if the postage for SOLD items should be entered under the Cost of your goods section?

Thanks so much for your time!

Let's start with some tax accounting basics before we add...

MichaelMc — Sat, 01 Jun 2019 15:21:59 GMT

Let's start with some tax accounting basics before we address your many questions.

The type of business that you are operating required an inventory for tax purposes, prior to enactment of the Tax Cuts and Jobs Act of 2017. Now, if your business averages under $25 million in gross receipts, you may account for your inventory conforming to your method of accounting. If, as I am willing to assume, you are a cash method taxpayer, you can now account for inventoriable items using the cash method, which means you will have no inventory for tax purposes. You will treat purchases of goods for retail or materials and supplies that are significant components of the goods you make for sale, as expenses at the time you pay for your purchases.

In light of the above, I will try to answer your numbered questions:

1. Cost of Purchases are goods you buy for resale, without performing any significant work on them. Materials and supplies are the things you but that are significant inputs into the process of making things you sell.

2. Incidental materials and supplies, things used in such small amounts per unit of production or which benefit the entire production process, are not part of Cost of Goods Sold, but are reported on Schedule C, line 22.

3. Irrelevant, since TCJA now allows you to expenses everything as purchased.

4. You will not be reporting an inventory. Use Sch. C, Part III, to report your Purchases and Materials & Supplies, but report zero (0) ending inventory, so all costs get expensed.

5. No. That line would be labeling, packaging, etc. Postage is an expense in Part V and carried to line 27a.

Thanks so much for your quick response! In Turbo Tax whe...

rhonda5838 — Sat, 01 Jun 2019 15:22:01 GMT

Thanks so much for your quick response! In Turbo Tax when I checked off I don’t carry an inventory (Sch C Part III) didn’t show any more. When I marked I carry an inventory I entered 0 (2018 ending inventory) and the Sch C Part III appeared once again.

On Sch C Part III, I then entered my material & supply expenses for the year. I just want to make sure the inventory section and Sch C Part III for Material & Supplies have been entered correctly.

Thanks so much I greatly appreciate all your help!

From what you have just said, I believe you have entered...

MichaelMc — Sat, 01 Jun 2019 15:22:03 GMT

From what you have just said, I believe you have entered everything correctly.