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File state taxes for free online Index A Aircraft, Cars, Boats, and Aircraft Annuities, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Annuity contracts, Certain Life Insurance and Annuity Contracts Antiques, Paintings, Antiques, and Other Objects of Art Appraisals, Appraisals Cost of, Cost of appraisals. File state taxes for free online IRS review of, Internal Revenue Service Review of Appraisals Qualified appraisal, Qualified Appraisal Appraiser, Qualified appraiser. File state taxes for free online Art objects, Paintings, Antiques, and Other Objects of Art Valued at $20,000 or more, Art valued at $20,000 or more. File state taxes for free online Valued at $50,000 or more, Art valued at $50,000 or more. File state taxes for free online Assistance (see Tax help) B Boats, Cars, Boats, and Aircraft Bonds, Stocks and Bonds Books, Books. File state taxes for free online Business, interest in, Interest in a Business C Cars, Cars, Boats, and Aircraft Clothing, used, Used Clothing, Deduction over $500 for certain clothing or household items. File state taxes for free online Coins, Coin collections. File state taxes for free online Collections, Collections Books, Books. File state taxes for free online Coins, Coin collections. File state taxes for free online Stamps, Stamp collections. File state taxes for free online Comments on publication, Comments and suggestions. File state taxes for free online Comparable properties, sales of, Sales of Comparable Properties, Selection of Comparable Sales Conservation contribution, Conservation purposes. File state taxes for free online Cost, Cost or Selling Price of the Donated Property Rate of increase or decrease, Rate of increase or decrease in value. File state taxes for free online Terms of purchase or sale, Terms of the purchase or sale. File state taxes for free online D Date of contribution, Date of contribution. File state taxes for free online Deductions of more than $5,000, Deductions of More Than $5,000 Deductions of more than $500,000, Deductions of More Than $500,000 F Fair market value, What Is Fair Market Value (FMV)? Comparable properties, sales of, Sales of Comparable Properties Cost, Cost or Selling Price of the Donated Property Date of contribution, Date of contribution. File state taxes for free online Determining FMV, Determining Fair Market Value Opinions of experts, Opinions of Experts Problems in determining FMV, Problems in Determining Fair Market Value Replacement cost, Replacement Cost Form 8283, Form 8283 Formulas, use in valuing property, Determining Fair Market Value Free tax services, How To Get Tax Help Future events, effect on value, Future Events H Help (see Tax help) Historic building, Building in registered historic district. File state taxes for free online Household goods, Household Goods, Deduction over $500 for certain clothing or household items. File state taxes for free online I Interest in a business, Interest in a Business Inventory, Inventory IRS review of appraisals, Internal Revenue Service Review of Appraisals Exception, Exception. File state taxes for free online J Jewelry and gems, Jewelry and Gems L Life insurance, Certain Life Insurance and Annuity Contracts M Market conditions, effect on value, Unusual Market Conditions More information (see Tax help) O Opinions of experts, Opinions of Experts P Paintings, Paintings, Antiques, and Other Objects of Art Partial interest, Partial Interest in Property Not in Trust Past events, effect on value, Using Past Events to Predict the Future Patents, Patents Penalties: Imposed on appraiser, Appraiser penalties. File state taxes for free online Imposed on taxpayer, Penalty Publications (see Tax help) Publicly traded securities, Publicly traded securities. File state taxes for free online Q Qualified appraisal, Qualified Appraisal Qualified appraiser, Qualified appraiser. File state taxes for free online Qualified conservation contribution, Qualified Conservation Contribution R Real estate, Real Estate Remainder interests, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Replacement cost, Replacement Cost Reversion interests, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions S Stamps, Stamp collections. File state taxes for free online Statement of Value, Exception. File state taxes for free online Stocks, Stocks and Bonds Suggestions for publication, Comments and suggestions. File state taxes for free online T Tax help, How To Get Tax Help Taxpayer Advocate, Contacting your Taxpayer Advocate. File state taxes for free online TTY/TDD information, How To Get Tax Help U Used clothing, Used Clothing, Deduction over $500 for certain clothing or household items. File state taxes for free online V Valuation of property, Valuation of Various Kinds of Property Annuities, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Cars, boats, and aircraft, Cars, Boats, and Aircraft Collections, Collections Household goods, Household Goods Interest in a business, Interest in a Business Inventory, Inventory Jewelry and gems, Jewelry and Gems Life insurance and annuity contracts, Certain Life Insurance and Annuity Contracts Paintings, antiques, art objects, Paintings, Antiques, and Other Objects of Art Partial interest in property, Partial Interest in Property Not in Trust Real estate, Real Estate Remainder interests, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Reversion interests, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Stocks and bonds, Stocks and Bonds Terms of years, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Used clothing, Used Clothing Valuation of property: Patents, Patents Prev  Up     Home   More Online Publications
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File state taxes for free online 6. File state taxes for free online   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. File state taxes for free online However, to determine these costs, you must value your inventory at the beginning and end of each tax year. File state taxes for free online 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. File state taxes for free online This chapter does not apply to a personal service business, such as the business of a doctor, lawyer, carpenter, or painter. File state taxes for free online 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. File state taxes for free online If you must account for an inventory in your business, you must generally use an accrual method of accounting for your purchases and sales. File state taxes for free online For more information, see chapter 2. File state taxes for free online 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. File state taxes for free online These lines are reproduced below and are explained in the discussion that follows. File state taxes for free online 35 Inventory at beginning of year. File state taxes for free online If different from last year's closing inventory, attach explanation   36 Purchases less cost of items withdrawn for personal use   37 Cost of labor. File state taxes for free online 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. File state taxes for free online Subtract line 41 from line 40. File state taxes for free online  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. File state taxes for free online 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). File state taxes for free online Opening inventory usually will be identical to the closing inventory of the year before. File state taxes for free online You must explain any difference in a schedule attached to your return. File state taxes for free online Donation of inventory. File state taxes for free online   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. File state taxes for free online 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. File state taxes for free online You must remove the amount of your contribution deduction from your opening inventory. File state taxes for free online It is not part of the cost of goods sold. File state taxes for free online   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. File state taxes for free online Treat the inventory's cost as you would ordinarily treat it under your method of accounting. File state taxes for free online For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. File state taxes for free online   A special rule may apply to certain donations of food inventory. File state taxes for free online See Publication 526, Charitable Contributions. File state taxes for free online Example 1. File state taxes for free online You are a calendar year taxpayer who uses an accrual method of accounting. File state taxes for free online In 2013, you contributed property from inventory to a church. File state taxes for free online It had a fair market value of $600. File state taxes for free online 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. File state taxes for free online The charitable contribution allowed for 2013 is $400 ($600 − $200). File state taxes for free online 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. File state taxes for free online The cost of goods sold you use in determining gross income for 2013 must not include the $400. File state taxes for free online You remove that amount from opening inventory for 2013. File state taxes for free online Example 2. File state taxes for free online 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. File state taxes for free online You would not be allowed any charitable contribution deduction for the contributed property. File state taxes for free online 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. File state taxes for free online If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into a finished product. File state taxes for free online Trade discounts. File state taxes for free online   The differences between the stated prices of articles and the actual prices you pay for them are called trade discounts. File state taxes for free online You must use the prices you pay (not the stated prices) in figuring your cost of purchases. File state taxes for free online Do not show the discount amount separately as an item in gross income. File state taxes for free online   An automobile dealer must record the cost of a car in inventory reduced by any manufacturer's rebate that represents a trade discount. File state taxes for free online Cash discounts. File state taxes for free online   Cash discounts are amounts your suppliers let you deduct from your purchase invoices for prompt payments. File state taxes for free online There are two methods of accounting for cash discounts. File state taxes for free online You can either credit them to a separate discount account or deduct them from total purchases for the year. File state taxes for free online Whichever method you use, you must be consistent. File state taxes for free online If you want to change your method of figuring inventory cost, you must file Form 3115, Application for Change in Accounting Method. File state taxes for free online For more information, see Change in Accounting Method in chapter 2. File state taxes for free online   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. File state taxes for free online If you use this method, do not reduce your cost of goods sold by the cash discounts. File state taxes for free online Purchase returns and allowances. File state taxes for free online   You must deduct all returns and allowances from your total purchases during the year. File state taxes for free online Merchandise withdrawn from sale. File state taxes for free online   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. File state taxes for free online Do this by crediting the purchases or sales account with the cost of merchandise you withdraw for personal use. File state taxes for free online You must also charge the amount to your drawing account. File state taxes for free online   A drawing account is a separate account you should keep to record the business income you withdraw to pay for personal and family expenses. File state taxes for free online As stated above, you also use it to record withdrawals of merchandise for personal or family use. File state taxes for free online This account is also known as a “withdrawals account” or “personal account. File state taxes for free online ” Line 37 Cost of Labor Labor costs are usually an element of cost of goods sold only in a manufacturing or mining business. File state taxes for free online Small merchandisers (wholesalers, retailers, etc. File state taxes for free online ) usually do not have labor costs that can properly be charged to cost of goods sold. File state taxes for free online 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. File state taxes for free online Direct labor. File state taxes for free online   Direct labor costs are the wages you pay to those employees who spend all their time working directly on the product being manufactured. File state taxes for free online 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. File state taxes for free online Indirect labor. File state taxes for free online   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. File state taxes for free online Other labor. File state taxes for free online   Other labor costs not properly chargeable to the cost of goods sold can be deducted as selling or administrative expenses. File state taxes for free online 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. File state taxes for free online Line 38 Materials and Supplies Materials and supplies, such as hardware and chemicals, used in manufacturing goods are charged to cost of goods sold. File state taxes for free online Those that are not used in the manufacturing process are treated as deferred charges. File state taxes for free online You deduct them as a business expense when you use them. File state taxes for free online Business expenses are discussed in chapter 8. File state taxes for free online 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. File state taxes for free online Containers. File state taxes for free online   Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. File state taxes for free online If they are not an integral part of the manufactured product, their costs are shipping or selling expenses. File state taxes for free online Freight-in. File state taxes for free online   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. File state taxes for free online Overhead expenses. File state taxes for free online   Overhead expenses include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision. File state taxes for free online The overhead expenses you have as direct and necessary expenses of the manufacturing operation are included in your cost of goods sold. File state taxes for free online 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. File state taxes for free online 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. File state taxes for free online Inventory at the end of the year is also known as closing or ending inventory. File state taxes for free online Your ending inventory will usually become the beginning inventory of your next tax year. File state taxes for free online 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. File state taxes for free online Prev  Up  Next   Home   More Online Publications