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Free Filing For 2012 Taxes

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Free Filing For 2012 Taxes

Free filing for 2012 taxes Publication 225 - Additional Material Prev  Up  Next   Home   More Online Publications
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The Free Filing For 2012 Taxes

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Sold on Schedule C, Lines 35 Through 42Line 35 Inventory at Beginning of Year Line 36 Purchases Less Cost of Items Withdrawn for Personal Use Line 37 Cost of Labor Line 38 Materials and Supplies Line 39 Other Costs Line 40 Add Lines 35 through 39 Line 41 Inventory at End of Year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for 2012 taxes If different from last year's closing inventory, attach explanation   36 Purchases less cost of items withdrawn for personal use   37 Cost of labor.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