My wife has a direct sales business where she buys samples primarily as advertising / promotion purposes so patrons can buy actual product through the company. When the line expires, she sells the samples at a discount. Would this be considered "inventory" or would I categories the samples as "advertising" and add the additional sample income to "income not from 1099"? Thanks.
It is inventory. She is purchasing items to resell even if she has to sell them at a reduced price.
Yes. There are two basic types of businesses in regards to this issue. If you make and/or sell merchandise you would enter it in COGS as indicated below. If you merely have a service type of business, you would enter it as an expense.
Per the IRS:
How To Figure Cost of Goods Sold
If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. However, to determine these costs, you must value your inventory at the beginning and end of each tax year.
This chapter applies to you if you are a manufacturer, wholesaler, or retailer or if you are engaged in any business that makes, buys, or sells goods to produce income.
Follow the instructions below to enter "Cost of Goods Sold":
1. Click on the Business tab and then click on the blue Continue button.
2. That will take you a screen that asks How do you want to work on your business income? Select I'll choose what I work on.
3. On the Let's gather your business info screen you'll see Business Income and Expenses. Click on either Update or Start, to the right.
4. The next screen will be Here's the business info we have so far. If you have been here before you can just select Edit.
5. On the next screen Inventory/Cost of Goods Sold is the third one down. Select Update.
Be sure you entered the beginning and ending inventories. If you do not keep an inventory, these are probably supplies.
TurboTax Calculates Cost of Goods Sold as follows:
Beginning Inventory
+ Purchases
= Inventory Available For Sale
- Ending Inventory
= Cost of Goods Sold
It is inventory. She is purchasing items to resell even if she has to sell them at a reduced price.
Yes. There are two basic types of businesses in regards to this issue. If you make and/or sell merchandise you would enter it in COGS as indicated below. If you merely have a service type of business, you would enter it as an expense.
Per the IRS:
How To Figure Cost of Goods Sold
If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. However, to determine these costs, you must value your inventory at the beginning and end of each tax year.
This chapter applies to you if you are a manufacturer, wholesaler, or retailer or if you are engaged in any business that makes, buys, or sells goods to produce income.
Follow the instructions below to enter "Cost of Goods Sold":
1. Click on the Business tab and then click on the blue Continue button.
2. That will take you a screen that asks How do you want to work on your business income? Select I'll choose what I work on.
3. On the Let's gather your business info screen you'll see Business Income and Expenses. Click on either Update or Start, to the right.
4. The next screen will be Here's the business info we have so far. If you have been here before you can just select Edit.
5. On the next screen Inventory/Cost of Goods Sold is the third one down. Select Update.
Be sure you entered the beginning and ending inventories. If you do not keep an inventory, these are probably supplies.
TurboTax Calculates Cost of Goods Sold as follows:
Beginning Inventory
+ Purchases
= Inventory Available For Sale
- Ending Inventory
= Cost of Goods Sold