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Level 3

First year doing biz taxes Cost of goods sold & inventory

So I have a question I doing my first year taxes for my Millinery business I have supply inventory left over as well a products that have not sold. I also use quicken so all my expenses downloaded while using that feature. My question is what is the difference between that download for expenses and doing Cost of goods and inventory I am confused as to if I should be listing my remain inventory value even though it downloaded under expenses when I bought the items?

2 Replies
Level 20

First year doing biz taxes Cost of goods sold & inventory

See if this helps:

Beginning of Year (BOY) Inventory: What *YOU* paid for any inventory in your physical possession on Jan 1 of the tax year. It flat out does not matter in what tax year you paid for that inventory either. Could have been 50 years ago for that matter.

End of Year (EOY) Inventory: What *YOU* paid for any inventory in your physical possession on Dec 31 of the tax year. Again, it flat out does not matter in what yax year you paid for that inventory either. Could have been 50 years ago for that matter.

Cost of Goods Sold (COGS): What *YOU* paid for any inventory that you *actually* *sold* during the tax year. It flat out does not matter in what tax year you paid for that inventory either.

Take note that it *does* *not* *matter* in what tax year you paid for inventory. But you can not deduct what you paid for that inventory until the tax year you *actually* *sell* that inventory. So if you paid $50 for 5 widgets back in 1960 and you sold those 5 widgets in 2018, you can't deduct that $50 until 2018 when you actually sold those widgets.

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Level 11

First year doing biz taxes Cost of goods sold & inventory

I'm not that familiar with using Quicken for a business.  I use Quicken all the time for personal use, but not business.

If depends how you are using the Quicken accounts.  For example, if you purchase some items for inventory, does that go into an "expense" account, or a type of asset account?

 

If you're putting all the purchases into expense accounts, then you need to subtract from the current year expenses, the amounts remaining at year end in finished goods and supplies. 

 

Couple that with SuperCarl's response, and that should get you the proper amount of Cost of Goods sold.

 

The formula for COS is:

 

Beginning of year inventory

plus current year purchases

equals goods available for sale

Less: ending inventory

equals Cost of Goods sold.

 

Note that these are generally asset accounts, not expense accounts.  Using expense accounts requires some adjusting as mentioned above