Labor costs associated with COGS for next year

I paid a large deposit for labor costs at the end of 2016 associated with production that will be complete in 2017 and the goods sold in 2017. This labor cost should be a part of my COGS for 2017-does that cost get reported into end of year inventory or is that just for physical materials on hand?

778

Expert Alumni

Jun 3, 2019 12:22:29 PM

Direct labor can be part of ending inventory. You should report this amount in ending inventory.

Please refer to this IRS document for more guidance (see Line 41 Inventory at End of Year at the end of the document):

https://www.irs.gov/publications/p334/ch06.html#en_US_2016_publink1000313473

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Labor costs associated with COGS for next year