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02-13-2018 08:01 AM - edited 02-13-2018 08:01 AM
I started a new online business in 2017. I am confused with YEAR END INVENTORY. How is this calculated?
1- 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? OR is it my total cost of inventory for entire year?
2- For line 36 of Sch C, would this be the TOTAL cost of inventory goods for entire year: https://www.irs.gov/pub/irs-pdf/f1040sc.pdf
02-18-2018 12:31 PM
Welcome to H&R Block community.
Your year-end inventory would be whatever inventory you still had unsold on the last day of 2017. If you still had $50 worth of inventory, that would be your year-end inventory. That number helps the program do the calculation for this form: https://www.irs.gov/pub/irs-pdf/f1125a.pdf
Line 36 of the Schedule C has you reduce your costs of goods sold (COGS) by whatever inventory you used for personal use. Example: If you owned a restaurant and cooked yourself lunch each day at the restaurant without paying the menu price, you would need to back out the costs of those food items from your COGS calculation. If you never used any goods for personal use the line would be the same as total purchases.
Tax Research Specialist (San Diego)