Expenses vs Cost of Goods Sold

[s.weller]

I'm a bit confused about entering my expenses for my business and COGS.

I keep inventory for my Etsy business. I understand the beginning and ending inventory amounts and that materials are different from supplies, but I am confused on the page in Turbo Tax where it is asking me for Cost of Purchases, Purchases Withdrawn for Personal Use, Labor Costs, Materials and Supplies, and Other Costs to Prepare for Sales.

I'm entering in the Cost of Purchases line item the total of cost of my materials that go directly into my finished products. 

But for the Materials and Supplies and Other Costs to Prepare for Sales line items, do I enter a lump sum amount of all of supplies here? And then all of my other expenses in the Other Costs, such as shipping and fees? 

If so, then do I not need to enter any expenses that Turbo Tax asks about, such as Advertising, Supplies, Assets, Office Expenses, and Taxes and Liscences? 

Or do I mixture of the two? The "Learn More" buttons are very vague and don't help. 

I also use CraftyBase for keeping inventory and it has given me this report to help. See attached. I'm just not sure where to enter each section. Thanks in advance for your help! 

[DawnC0]

The Cost of Goods Sold account is only for your inventory.  You will still use the advertising, office expenses, assets, supplies, and taxes & licenses accounts to enter those expenses.  The only costs that go in the COGS account are costs for items that you are going to resell.   Any costs entered under COGS do not get entered anywhere else on your tax return.  A cost is either an inventory (COGS) expense or a general business expense (all other expense accounts).

Cost of Goods Sold = Beginning of Year Inventory + Purchase Costs During the Year - End of Year Inventory.  

It looks like your attachment was removed, probably because it contains identifying information and this is a public forum.  But within the COGS account, you may use the 'Cost of Purchases', 'Materials and Supplies', 'Other Costs to Prepare', or any combination that works for you.  It all gets added together to make up the Purchase Costs During the Year amount in the formula above.  The result is the amount that TurboTax will transfer to your Schedule C for COGS.  

The important thing is to not enter any expense twice.  Only costs directly related to the goods you sell should be recorded under the Cost of Goods Sold section.  Everything else goes outside of Inventory/Cost of Goods Sold.  So you may have 'supplies' that are general business supplies and others that are COGS.  Include them in COGS only if they become part of your final product.  If they are not part of your final product, leave them out of COGS and use the general business categories, such as ''Other Miscellaneous Expenses'' or ''Supplies".  

[Anonymous]

if this is the first year for your businesses you should consult a tax pro.  there may be no need to account for your year end inventories (ie  you may be able to expense what you have paid for but have not sold by year end).  first year businesses may need to make elections and use the proper accounting method .   startup costs may only be partially deductible the first year.  equipment  would need to be depreciated.   if you use your home for the business, if you meet certain requirements, you may be able to deduct part of your home costs against your business income.   keeping good records is crucial.