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02-12-2018 08:58 AM
I started a new online business in January 2017. There is a part which says:
"Enter the amount of your inventory at the beginning of 2017. The beginning inventory usually will be identical to the closing inventory of 2016."
I purchased about $100 worth of inventory to start selling in January. So do I write $100 for beginning inventory?
02-12-2018 09:21 AM
Congratulations and best of luck with your new business.
What you are dealing with is "Cost of Goods Sold" which is part 3 of the schedule C on page 2. Your Beginning inventory is (generally) the amount of inventory you had on hand the last day of the year. If you made the purchases before the start of the year then beginning inventory is correct, if you purchased them in January you would add that to purchases (line 36 of schedule C). You can see the form here: https://www.irs.gov/pub/irs-pdf/f1040sc.pdf
02-12-2018 10:29 AM - edited 02-12-2018 10:33 AM
Okay, i found this somewhere.
To calculate your cost of goods sold, you will need the dollar value of your inventory at the beginning and end of the year. If you started your business in 2014, the beginning of the year number will be zero. If you filed Schedule C last year, your beginning inventory is the same as the end-of-year inventory you reported on your 2013 tax return. Inventory includes finished goods and raw materials.
1- I bought my items to sell in January 2017, so would I enter 0 since I started mine in 2017?
2- In the end of 2017, how do I calculate end of year inventory? Is it whatever goods I did not sell that I bought during the year? So if I bought $50 worth of inventory in December and still had it, would I write that value ($50) for ending inventory?
3- For line 36 of Sch C, would this be the TOTAL cost of goods for entire year?
02-13-2018 08:09 AM
Ending inventory should be the product inventory you have on hand at the end of the year. So if you only had $50 of widgets on 12/31, that is your ending inventory.
Purchases (line 36) is the new inventory you purchased over the course of the year. It sounds like you started 1/1 with $0 of inventory. So everything you purchased for the purposes of selling would be included on this line, and then what is left over is your ending. This way you will end up with the correct amount for Cost of Goods Sold.
Or put another way, you COGS is: Beginning Inventory + Purchases - Ending Inventory (generally, there's other instances but this will cover most).