cost of goods sold

[okatay]

Can someone actually try and tell me if it is possible to write a negative number for line 36 of schedule C and it is ok? The other tax software I was using doesn't allow it. They say IRS doesn't allow negative there. But it doesn't make sense to me. (because if you pull more items from inventory than you purchase that year, that will be negative, such as pulling from existing inventory too) If we are able to do it with Turbotax, I will do it with Turbotax.

[IsabellaG]

No, you can't do that. A negative number won't result if you do the computation correctly. The way the computation works is this:

           Beginning Inventory (what you purchased before the beginning of 2018 that you didn't sell in 2017)

PLUS: Purchases (less items withdrawn for personal use)  For this they mean subtract the items you withdrew for personal use from the purchases you made this year. Not what you took from last year's inventory. That part will come later.

MINUS: Ending Inventory (what you have left at the end of the year.

EQUALS: Cost of Goods Sold for the year. 

If you pull more items from inventory than you purchased in 2018, you'll be pulling from your beginning inventory, so you need to reduce your beginning inventory by the amount you pulled. You'll have to check that your beginning inventory is different from last year's ending inventory, and attach a statement as to why.  You can do all that in TurboTax.

[okatay]

okay now i understand thanks. so then really a negative number is not supposed to be on line 36 indeed - but we pull from beginning inventory. ok.... so with this attached statement, is it still possible to efile?

OR,

because there is an attached statement now, we will have to print and send by regular mail?

[IsabellaG]

You'll still be able to efile. The statement gets attached electronically.

[okatay]

so just to make sure, you are saying it is NOT possible to display a negative on your tax return for line 36 correct? because before people said otherwise - they said it is possible to make line 36 negative - and they said nothing about making beginning inventory different. You are saying that if line 36 is supposed to get negative, the program automatically pulls that amount from beginning inventory? and that is why it will be different from last year's end inventory?

please see here, they told that it was possible to make line 36 negative:

https://ttlc.intuit.com/questions/4682681-items-withdrawn-from-cost-of-goods-sold

so you are positive that line 36 will not be negative and start inventory must be different instead correct?

good that I asked in community too just to make sure ...

to try myself i must first pay the $119 fee? or we can use it and see results as we want and only when we are about to file we pay? 

[IsabellaG]

No, I'm not positive. I should have simply run your situation through the program, because you don't enter anything on line 36. The program does it for you based on how you enter your information on the screens. This is the screen that you'll see, and you won't be putting any negative figures anywhere. And you won't have to do what I originally suggested. Just enter your Purchases and your Items withdrawn for personal use separately. When you do that, the program will put a negative number on line 36. See the screen below.  I'm sorry for the confusion.

Also, you wouldn't have had to pay the fee for TurboTax Online. You can start for free, and if you don't want to use the program to file your taxes, you don't have to pay anything.

[okatay]

Anyway I appreciate and thank you for your help, the important thing is to clarify the situation... so lets confirm... so above you said :

"No, you can't do that. A negative number won't result if you do the computation correctly. The way the computation works is this:

PLUS: Purchases (less items withdrawn for personal use)  For this they mean subtract the items you withdrew for personal use from the purchases you made this year. Not what you took from last year's inventory. That part will come later."

So you said negative in line 36 will not result.

But now you are saying a negative number will result.

So a negative number WILL result and it can be shown on final tax return. So is that how you show when you pull inventory from existing? And so line 36 is not just for this year (as you said above) but for puling from previous years inventory too right?

And so we will not make any change to beginning inventory correct? That stays same as ending of prior years then right? all we do is enter purchases and withdrawals so a negative will result on line 36 right?....

(I wasn't talking about entering directly negative to line 36 anyway, I was talking about the result that will be shown on line 36)

And the reason of doing this (pulling from existing inventory) on line 36 which will be negative, is because, if we didn't do it here but simply reduced ending inventory on line 41 to zero, that would be like reducing tax liability and for an inventory you take to yourself (but not sell or throw away but still keep to yourself) which we cannot do , and you can reduce ending inventory to zero only if you sold or threw away those inventory but not possess it anymore right?

[IsabellaG]

As I said in my last comment, you should enter the cost of purchases in one line in the program, and the amount of your inventory that you withdrew for personal purposes on the second line, per the screenshot that I showed. Yes, this will result in a negative number on line 36, as I have already said. I have corrected myself for the wrong answer I originally gave you. And yes, you are entering the amounts that you withdrew for personal use so you won't be deducting that as part of your cost of goods sold. I again apologize for the confusion.

[okatay]

thanks for the confirming.

And an equivalent of reducing inventory to zero with this method (negative on line 36) would be to just leave a non-zero ending inventory (line 41), IF that is your final schedule C on that business, and you do not do schedule C again on it right? So, in that case also, that non zero inventory on that final ending inventory means your personal property in future years right? And if in future years if you sometimes happen to sell from these items, without doing business, that then will go to form 8949 in future years ?

[tgomax]

Hi there,

I have the same issue where TurboTax does not seem to allow negative COGS.

My business [accrual] had more returns/refunds (for 2019 sales) than 2020 sales due to the pandemic.

So Cancelled Sales (from 2019) > 2020 Sales

and Cancelled COGS (from 2019) > 2020 COGS

For example:

End of 2019 Inventory = Beginning of 2020 inventory = $100

Purchases in 2020 = $75

End of 2020 inventory = $200

The remaining $25 was the (Cancelled COGS - COGS) which ended up back in inventory due to returns. 

I believe this should result in a -$25 2020 COGS in order to satisfy the equation.

[DawnC]

The Cost of Goods Sold (COGS) is a reduction in your income. If it shows as a negative amount, then this will show as an addition to your income.   If you had returns, enter them under Returns and Allowances in the Self-Employment Income Section.    It should balance after that.  

[nico91]

I'm having some of the same issues and cant figure my costs of good.  I need help. So for example

2020 ending inventory = 4500

2021 ending inventory = 8100 

2021 sales = 3500

What sold items cost me in 2021 = 1500

So what do i put in the "cost of purchases line" which also says 2020 on the left top and 2021 on the right top?

[ErnieS0]

You cost of purchases is the amount you spent to buy the items you sold.

If you started with 4,500 and ended with 8,100 then you added 3,600 in product to inventory plus 1,500 you sold so your cost of purchases would be 5,100.