I am just starting to do work for other people on my own, instead of for my old boss. On the Schedule C, it lists a space for COGS for businesses that carry an inventory. I won’t be carrying any inventory, but I wasn’t sure if they meant to list the materials that are used on the jobs as my COGS, or if that should be left under Materials or some other title with the rest of the Schedule C expenses.
What do the rest of you do for this? Do you enter materials as a COGS, or do you list them as an expense along with insurance, cell phone, etc?
Replies
That line is Cost of Goods and Services.
It has been a few years since I did my own, but I think I put subcontractors costs along with a few other things there on that line and materials went elsewhere, but it would seem legit to put materials there too.
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where ...
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I thought it was Cost of Goods Sold.... but I haven't done my own in 20 years.
I think you are right - see I said it had been a while...;)
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
But thinking this thru further, the naature of your Q tells me that you would benefit mightily by retaining an accountant to advise you as well as to do the tax forms. I have found that the cost of the accountants fees always paid for themselves in taxes saved and good advice rendered.
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
<I have found that the cost of the accountants fees always paid for themselves >
You said it - My guy has been just super for years. Just in the last week, a re-filing of a schedule was disallowed by the IRS (this was an attempt to re-allocate a carry-back from 2005); he apologized, and sent me a check for the $200 they had charged for the prep of that form.
Nice!
Forrest
The only place that the inventory, COGS, returns (can't remember if there is anything else) is if you stock items for sale. And then the only place that any of those realy mean anything is that inventory can be tracked from year to year.
As a carpenter or other building trades person you don't have any stocked goods for sale.
You can put the materials in Part II, suppliers,, or Part V, other expenses.
However, except for carryover inventory it does not matter where stuff goes. The bottom line is the same.
But I do suggest that you set down with a tax pro for an hour or two and not only going over the form, but more important things about what you are bring into the business that could be depreciated, the difference between capital items and items that are expensed. What section 179 is. What kind of records to keep. What milage is deductable and should you take standard milage or actual cost.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Loyd,
COGS (Cost of Good Sold) can be somewhat confusing for us in the service sector. I would spend a little time looking at the Instructions for
Schedule C and then sit down with a tax pro. I always find it worthwhile to do your own education prior to meeting with a professional, as opposed to letting your accountant explain simple concepts that you could have learned in two minutes on your own with his billable hours clock ticking.
It will cost you some money, but the potential savings in not paying penalties could easily make it a wash, and you will come out smarter and more educated to boot. Besides, the cost of paying your accountant is deductible on line 17.
Jon Blakemore
RappahannockINC.com Fredericksburg, VA
I am in a similar position to you, recently in business for myself. I consulted with a bookkeeper to train me as to how to keep my records. I was told that materials & subcontractors (i.e. items that are passed on directly to the homeowner, be it through a t&m or fixed price arrangements) are considered cost of goods sold. Things such as cell phone, gas, tools, other subcontractors (like the consultant i hired to teach me this) would be treated as expenses.
Hope that helps.
I've done taxes for 30 years...here's the deal.
Lets say you are hired to enlarge a back door that has a brick surround. You buy a door (cost goes on line 36 Purchases), you hire a brick sub contractor (cost goes on line 39 other costs), you buy shims, nails and caulk (I would put those on line 38 materials & supplies). These are all costs that went directly to the job. You don't need to keep track of inventory unless you bought 10 doors to get a better deal.You get out of life what you put into it......minus taxes.
Marv
"I've done taxes for 30 years...here's the deal."
May I ply your expertise with a question?
I went into constr. 3 seasons ago, and had an acct. prepare our taxes, and a lawyer file nec. paperwork to start my business and file ann. reports.
For '06 our accountant did not complete our taxes til July, and then charged us to file an amended return for '05 because she missed the child deduction for our daughter.
Years before, I did our own taxes successfully with Turbo Tax. We hired the accountant because I was starting a business and we'd sold an investment property in that year. This year, I think I'll go back to doing them myself.
My question is this. What is the penalty for 'underpayment of estimated tax by individuals' ?
Last July, when she finally finished our taxes, she advised that I make estimated tax payments and gave me vouchers for 6/15/07, 9/17/07 and 1/15/08 totaling only 1140$ I did not make these payments, but I've set aside plenty of $ for taxes.
Is the penalty for not making these estimated payments severe? Should I make the estimated payments now to avoid penalty?
What say you?
Thanks.
I am assuming you are a Sol owner and not a corporation.
estimates totaling only 1140
If you would have paid the estimates, even though you owe more at end of year, you would owe no penatly.
then charged us to file an amended return for '05 because she missed the child
I guess she says it was your mistake because you should have reviewed the return.
What is the penalty for 'underpayment of estimated tax by individuals'
Its about 1% per month. If you file in April, you owe 12 months on the 1st installment, 10 months on the 2nd installment, 7 months on the 3rd installment and 3 months on the 4th installment. If you pay up before 1-15-08, you can skip the last penalty.You get out of life what you put into it......minus taxes.
Marv
Hi Thanks for reply,
I'm an LLC.
Before your reply I just decided to pay it. Sent it off in today's mail.
Is that 1% of the estimated payment, or 1% of total tax?
Does it matter that my wife has witholding, and we file jointly?
Thanks
Its 1% of tax. I would have your wife change her withholding and have extra taken out to get more tax paid in than was owed last year but not much time left. Withholding is spread out over all estimates even if paid in December.You get out of life what you put into it......minus taxes.
Marv
Not a big penalty but a little slap.
We haven't changed her witholding since having our daughter so we do have nearly our total tax burden witheld from her salary alone.
Thanks
To avoid the penalty, you need to have more paid in this year than your tax liablility last year. If you're short $1, the penalty applies in full.You get out of life what you put into it......minus taxes.
Marv
"To avoid the penalty, you need to have more paid in this year than your tax liablility last year. If you're short $1, the penalty applies in full."There are 3 different outs.That is one. Another is that if you are withing $500 of the amount do. Or the total taxes due are less than $500. I am doing these number from my head and I think that they are right, but they might be $1000.And I *think* that the penalty is only computed on the amount that you are short.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
The advise I gave is not 100% correct. But I didn't want to write a book as an explanation. Actually you only have to pay in 80% of current liability or 100% of last years tax (if not over income limit in which case its 110%), or be under $1,000. But this doesn't always eliminate the 1st, 2nd and 3rd qtr penalties. There, I wrote the book.You get out of life what you put into it......minus taxes.
Marv
Also check for an adult education class on running a small business.
Typically they are run by school adult ed programs, community coledges, chamber of commerces, and county extension offices.
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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
First, go to your library, bookstore, or Amazon and get and read
http://www.amazon.com/Small-Time-Operator-10th-Business/dp/0917510283/ref=pd_bbs_sr_2?ie=UTF8&s=books&qid=1196888660&sr=8-2
Second, go to an accountant to help you get set up.
Third, buy an accounting software package and use it. Keep meticulous records and enter them daily. This avoids the, "What the heck did I spend $243.32 on SCWPCB at Home Depot for?"
Fourth, use a credit card or check for all purchases so you have a paper trail. You might want a small petty cash for items less than a few dollars, but enter them as well.
Color me lucky, my wife is a CPA. When she comes home where a million here and a million there is substantially correct, she works on my books at the end of every month. When I was a kid (1950s and 1960s), I can remember my grandfather coming over with boxes of receipts for eggs and tomatoes and having to total up all the expenses and receipts for the year. What a mess that was.
COGS: http://encyclopedia.thefreedictionary.com/Cost+Of+Goods+Sold
Edited 12/5/2007 4:32 pm ET by byhammerandhand