I'm a jewelry artist and buy my raw materials in bulk (like stones and metals). I do not keep track of inventory, or assign a value to each individual stone I purchase, so I do not have an efficient way of keeping track of the cost of goods sold, or exact expenses that were actually used.
Can I skip Part III: Cost of Goods Sold, and enter the total of all my purchases as expenses, even if I did not use every single stone or every foot of metal? If I'm understanding correctly, I AM allowed to do this, as long as I don't deduct the cost of any of those materials on future tax forms when I do actually use the material.
Thank you so much for any help, I am totally stressed about this as I want to file my taxes right.
Yes, you are correct. Assuming you are a small business, (gross receipts of less than $27 million) you can choose to not keep an inventory. If you choose to not keep an inventory, you still will need to use a consistent method of accounting and you cannot double dip.
So, if you claim all of your inventory as an expense, you cannot deduct any cost of goods sold or you would be double dipping with the cost of your supplies. You can do this as long as you have started selling or put the items out for sale and you are not just collecting the material. If you choose to expense your materials, then yes, you can skip Part III.
If however, your sales are greater than $27 million, you must choose an inventory method.
Thank you so much for your reply! It helps a lot.
I do have a follow-up question though. You wrote, "You can do this as long as you have started selling or put the items out for sale and you are not just collecting the material." I have a large inventory of raw materials, stones and metals (that I bought in bulk,) which I keep on hand for future jewelry pieces and also offer them to my customers to pick from for custom jewelry pieces. Of all the materials purchases, some I have used and already sold, others are just waiting to be used. Would that count as started selling, or put the items out for sale?
Thank you once again!