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Colorado Amended Tax Return 2011

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Colorado Amended Tax Return 2011

Colorado amended tax return 2011 6. Colorado amended tax return 2011   How To Figure Cost of Goods Sold Table of Contents Introduction Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42Line 35 Inventory at Beginning of Year Line 36 Purchases Less Cost of Items Withdrawn for Personal Use Line 37 Cost of Labor Line 38 Materials and Supplies Line 39 Other Costs Line 40 Add Lines 35 through 39 Line 41 Inventory at End of Year Line 42 Cost of Goods Sold Introduction If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. Colorado amended tax return 2011 However, to determine these costs, you must value your inventory at the beginning and end of each tax year. Colorado amended tax return 2011 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. Colorado amended tax return 2011 This chapter does not apply to a personal service business, such as the business of a doctor, lawyer, carpenter, or painter. Colorado amended tax return 2011 However, if you work in a personal service business and also sell or charge for the materials and supplies normally used in your business, this chapter applies to you. Colorado amended tax return 2011 If you must account for an inventory in your business, you must generally use an accrual method of accounting for your purchases and sales. Colorado amended tax return 2011 For more information, see chapter 2. Colorado amended tax return 2011 Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42 Figure your cost of goods sold by filling out lines 35 through 42 of Schedule C. Colorado amended tax return 2011 These lines are reproduced below and are explained in the discussion that follows. Colorado amended tax return 2011 35 Inventory at beginning of year. Colorado amended tax return 2011 If different from last year's closing inventory, attach explanation   36 Purchases less cost of items withdrawn for personal use   37 Cost of labor. Colorado amended tax return 2011 Do not include any amounts paid to yourself   38 Materials and supplies   39 Other costs   40 Add lines 35 through 39   41 Inventory at end of year   42 Cost of goods sold. Colorado amended tax return 2011 Subtract line 41 from line 40. Colorado amended tax return 2011  Enter the result here and on line 4   Line 35 Inventory at Beginning of Year If you are a merchant, beginning inventory is the cost of merchandise on hand at the beginning of the year that you will sell to customers. Colorado amended tax return 2011 If you are a manufacturer or producer, it includes the total cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the goods (see Inventories in chapter 2). Colorado amended tax return 2011 Opening inventory usually will be identical to the closing inventory of the year before. Colorado amended tax return 2011 You must explain any difference in a schedule attached to your return. Colorado amended tax return 2011 Donation of inventory. Colorado amended tax return 2011   If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. Colorado amended tax return 2011 The basis of donated inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. Colorado amended tax return 2011 You must remove the amount of your contribution deduction from your opening inventory. Colorado amended tax return 2011 It is not part of the cost of goods sold. Colorado amended tax return 2011   If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. Colorado amended tax return 2011 Treat the inventory's cost as you would ordinarily treat it under your method of accounting. Colorado amended tax return 2011 For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. Colorado amended tax return 2011   A special rule may apply to certain donations of food inventory. Colorado amended tax return 2011 See Publication 526, Charitable Contributions. Colorado amended tax return 2011 Example 1. Colorado amended tax return 2011 You are a calendar year taxpayer who uses an accrual method of accounting. Colorado amended tax return 2011 In 2013, you contributed property from inventory to a church. Colorado amended tax return 2011 It had a fair market value of $600. Colorado amended tax return 2011 The closing inventory at the end of 2012 properly included $400 of costs due to the acquisition of the property, and in 2012, you properly deducted $50 of administrative and other expenses attributable to the property as business expenses. Colorado amended tax return 2011 The charitable contribution allowed for 2013 is $400 ($600 − $200). Colorado amended tax return 2011 The $200 is the amount that would be ordinary income if you had sold the contributed inventory at fair market value on the date of the gift. Colorado amended tax return 2011 The cost of goods sold you use in determining gross income for 2013 must not include the $400. Colorado amended tax return 2011 You remove that amount from opening inventory for 2013. Colorado amended tax return 2011 Example 2. Colorado amended tax return 2011 If, in Example 1, you acquired the contributed property in 2013 at a cost of $400, you would include the $400 cost of the property in figuring the cost of goods sold for 2013 and deduct the $50 of administrative and other expenses attributable to the property for that year. Colorado amended tax return 2011 You would not be allowed any charitable contribution deduction for the contributed property. Colorado amended tax return 2011 Line 36 Purchases Less Cost of Items Withdrawn for Personal Use If you are a merchant, use the cost of all merchandise you bought for sale. Colorado amended tax return 2011 If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into a finished product. Colorado amended tax return 2011 Trade discounts. Colorado amended tax return 2011   The differences between the stated prices of articles and the actual prices you pay for them are called trade discounts. Colorado amended tax return 2011 You must use the prices you pay (not the stated prices) in figuring your cost of purchases. Colorado amended tax return 2011 Do not show the discount amount separately as an item in gross income. Colorado amended tax return 2011   An automobile dealer must record the cost of a car in inventory reduced by any manufacturer's rebate that represents a trade discount. Colorado amended tax return 2011 Cash discounts. Colorado amended tax return 2011   Cash discounts are amounts your suppliers let you deduct from your purchase invoices for prompt payments. Colorado amended tax return 2011 There are two methods of accounting for cash discounts. Colorado amended tax return 2011 You can either credit them to a separate discount account or deduct them from total purchases for the year. Colorado amended tax return 2011 Whichever method you use, you must be consistent. Colorado amended tax return 2011 If you want to change your method of figuring inventory cost, you must file Form 3115, Application for Change in Accounting Method. Colorado amended tax return 2011 For more information, see Change in Accounting Method in chapter 2. Colorado amended tax return 2011   If you credit cash discounts to a separate account, you must include this credit balance in your business income at the end of the tax year. Colorado amended tax return 2011 If you use this method, do not reduce your cost of goods sold by the cash discounts. Colorado amended tax return 2011 Purchase returns and allowances. Colorado amended tax return 2011   You must deduct all returns and allowances from your total purchases during the year. Colorado amended tax return 2011 Merchandise withdrawn from sale. Colorado amended tax return 2011   If you withdraw merchandise for your personal or family use, you must exclude this cost from the total amount of merchandise you bought for sale. Colorado amended tax return 2011 Do this by crediting the purchases or sales account with the cost of merchandise you withdraw for personal use. Colorado amended tax return 2011 You must also charge the amount to your drawing account. Colorado amended tax return 2011   A drawing account is a separate account you should keep to record the business income you withdraw to pay for personal and family expenses. Colorado amended tax return 2011 As stated above, you also use it to record withdrawals of merchandise for personal or family use. Colorado amended tax return 2011 This account is also known as a “withdrawals account” or “personal account. Colorado amended tax return 2011 ” Line 37 Cost of Labor Labor costs are usually an element of cost of goods sold only in a manufacturing or mining business. Colorado amended tax return 2011 Small merchandisers (wholesalers, retailers, etc. Colorado amended tax return 2011 ) usually do not have labor costs that can properly be charged to cost of goods sold. Colorado amended tax return 2011 In a manufacturing business, labor costs properly allocable to the cost of goods sold include both the direct and indirect labor used in fabricating the raw material into a finished, saleable product. Colorado amended tax return 2011 Direct labor. Colorado amended tax return 2011   Direct labor costs are the wages you pay to those employees who spend all their time working directly on the product being manufactured. Colorado amended tax return 2011 They also include a part of the wages you pay to employees who work directly on the product part time if you can determine that part of their wages. Colorado amended tax return 2011 Indirect labor. Colorado amended tax return 2011   Indirect labor costs are the wages you pay to employees who perform a general factory function that does not have any immediate or direct connection with making the saleable product, but that is a necessary part of the manufacturing process. Colorado amended tax return 2011 Other labor. Colorado amended tax return 2011   Other labor costs not properly chargeable to the cost of goods sold can be deducted as selling or administrative expenses. Colorado amended tax return 2011 Generally, the only kinds of labor costs properly chargeable to your cost of goods sold are the direct or indirect labor costs and certain other costs treated as overhead expenses properly charged to the manufacturing process, as discussed later under Line 39 Other Costs. Colorado amended tax return 2011 Line 38 Materials and Supplies Materials and supplies, such as hardware and chemicals, used in manufacturing goods are charged to cost of goods sold. Colorado amended tax return 2011 Those that are not used in the manufacturing process are treated as deferred charges. Colorado amended tax return 2011 You deduct them as a business expense when you use them. Colorado amended tax return 2011 Business expenses are discussed in chapter 8. Colorado amended tax return 2011 Line 39 Other Costs Examples of other costs incurred in a manufacturing or mining process that you charge to your cost of goods sold are as follows. Colorado amended tax return 2011 Containers. Colorado amended tax return 2011   Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. Colorado amended tax return 2011 If they are not an integral part of the manufactured product, their costs are shipping or selling expenses. Colorado amended tax return 2011 Freight-in. Colorado amended tax return 2011   Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of cost of goods sold. Colorado amended tax return 2011 Overhead expenses. Colorado amended tax return 2011   Overhead expenses include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision. Colorado amended tax return 2011 The overhead expenses you have as direct and necessary expenses of the manufacturing operation are included in your cost of goods sold. Colorado amended tax return 2011 Line 40 Add Lines 35 through 39 The total of lines 35 through 39 equals the cost of the goods available for sale during the year. Colorado amended tax return 2011 Line 41 Inventory at End of Year Subtract the value of your closing inventory (including, as appropriate, the allocable parts of the cost of raw materials and supplies, direct labor, and overhead expenses) from line 40. Colorado amended tax return 2011 Inventory at the end of the year is also known as closing or ending inventory. Colorado amended tax return 2011 Your ending inventory will usually become the beginning inventory of your next tax year. Colorado amended tax return 2011 Line 42 Cost of Goods Sold When you subtract your closing inventory (inventory at the end of the year) from the cost of goods available for sale, the remainder is your cost of goods sold during the tax year. Colorado amended tax return 2011 Prev  Up  Next   Home   More Online Publications
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The Colorado Amended Tax Return 2011

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