Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.
08-11-2017 10:29 AM
When figuring cost of items sold, as in a retail business, do I add in the cost of labor required to process the items (widgets) for sale such as quality checks, packaging, labeling, sorting, storing, etc. etc.? And if I do, what is a fair amount to claim as the labor expense?
Also, what is the best accounting method to set up for cost of goods sold?
08-15-2017 05:04 PM
Welcome to the H&R Block community.
Cost of goods sold is figured by the following calculation:
BEGINNING INVENTORY AS OF JANUARY 1ST + COST OF GOODS PURCHASED DURING THE YEAR - ENDING INVENTORY AS OF DECEMBER 31ST = COST OF GOODS SOLD
Cost of goods sold does not include labor. Labor is a separate category of expense.
Most taxpayers use the cash method of accounting as it's easier to keep income and expenses straight when you record them as the payments are actually made and received. Cash basis accounting provides a better picture of cash flow. If you deal with a lot of receivables & payables however then you may wish to use the accrual method so that revenues and expenses are recorded when they occur instead of when the money is actually received or paid. If using the accrual method you will want to watch cash flow carefully so that you know how your business is really doing.
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)
04-16-2018 02:15 AM - edited 04-16-2018 02:15 AM
Where does one enter COGS on the 2017 "Self Employed" online interview? I spent HOURS looking for this, going round and round. Stick it under "Other?" I'm paying for a product that should have this!!