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Irs Amended Tax Forms

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Irs Amended Tax Forms

Irs amended tax forms 2. Irs amended tax forms   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Irs amended tax forms The pay may be in cash, property, or services. Irs amended tax forms It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Irs amended tax forms For information about deducting employment taxes, see chapter 5. Irs amended tax forms You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Irs amended tax forms Empowerment zone employment credit (Form 8844). Irs amended tax forms Indian employment credit (Form 8845). Irs amended tax forms Work opportunity credit (Form 5884). Irs amended tax forms Credit for employer differential wage payments (Form 8932). Irs amended tax forms Reduce your deduction for employee wages by the amount of employment credits you claim. Irs amended tax forms For more information about these credits, see the form on which the credit is claimed. Irs amended tax forms Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Irs amended tax forms Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Irs amended tax forms These and other requirements that apply to all business expenses are explained in chapter 1. Irs amended tax forms In addition, the pay must meet both of the following tests. Irs amended tax forms Test 1. Irs amended tax forms It must be reasonable. Irs amended tax forms Test 2. Irs amended tax forms It must be for services performed. Irs amended tax forms The form or method of figuring the pay does not affect its deductibility. Irs amended tax forms For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Irs amended tax forms Test 1—Reasonableness You must be able to prove that the pay is reasonable. Irs amended tax forms Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Irs amended tax forms If the pay is excessive, the excess pay is disallowed as a deduction. Irs amended tax forms Factors to consider. Irs amended tax forms   Determine the reasonableness of pay by the facts and circumstances. Irs amended tax forms Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Irs amended tax forms   To determine if pay is reasonable, also consider the following items and any other pertinent facts. Irs amended tax forms The duties performed by the employee. Irs amended tax forms The volume of business handled. Irs amended tax forms The character and amount of responsibility. Irs amended tax forms The complexities of your business. Irs amended tax forms The amount of time required. Irs amended tax forms The cost of living in the locality. Irs amended tax forms The ability and achievements of the individual employee performing the service. Irs amended tax forms The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Irs amended tax forms Your policy regarding pay for all your employees. Irs amended tax forms The history of pay for each employee. Irs amended tax forms Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Irs amended tax forms Employee-shareholder salaries. Irs amended tax forms   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Irs amended tax forms The excessive part of the salary would not be allowed as a salary deduction by the corporation. Irs amended tax forms For more information on corporate distributions to shareholders, see Publication 542, Corporations. Irs amended tax forms Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Irs amended tax forms For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Irs amended tax forms Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Irs amended tax forms If you give property to an employee as an employee achievement award, your deduction may be limited. Irs amended tax forms Achievement awards. Irs amended tax forms   An achievement award is an item of tangible personal property that meets all the following requirements. Irs amended tax forms It is given to an employee for length of service or safety achievement. Irs amended tax forms It is awarded as part of a meaningful presentation. Irs amended tax forms It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Irs amended tax forms Length-of-service award. Irs amended tax forms    An award will qualify as a length-of-service award only if either of the following applies. Irs amended tax forms The employee receives the award after his or her first 5 years of employment. Irs amended tax forms The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Irs amended tax forms Safety achievement award. Irs amended tax forms    An award for safety achievement will qualify as an achievement award unless one of the following applies. Irs amended tax forms It is given to a manager, administrator, clerical employee, or other professional employee. Irs amended tax forms During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Irs amended tax forms Deduction limit. Irs amended tax forms   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Irs amended tax forms $400 for awards that are not qualified plan awards. Irs amended tax forms $1,600 for all awards, whether or not qualified plan awards. Irs amended tax forms   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Irs amended tax forms   A highly compensated employee is an employee who meets either of the following tests. Irs amended tax forms The employee was a 5% owner at any time during the year or the preceding year. Irs amended tax forms The employee received more than $115,000 in pay for the preceding year. Irs amended tax forms You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Irs amended tax forms   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Irs amended tax forms To figure this average cost, ignore awards of nominal value. Irs amended tax forms Deduct achievement awards as a nonwage business expense on your return or business schedule. Irs amended tax forms You may not owe employment taxes on the value of some achievement awards you provide to an employee. Irs amended tax forms See Publication 15-B. Irs amended tax forms Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Irs amended tax forms However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Irs amended tax forms If the bonus is paid in property, see Property , later. Irs amended tax forms Gifts of nominal value. Irs amended tax forms    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Irs amended tax forms Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Irs amended tax forms For more information on this deduction limit, see Meals and lodging , later. Irs amended tax forms Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Irs amended tax forms Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Irs amended tax forms For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Irs amended tax forms Fringe Benefits A fringe benefit is a form of pay for the performance of services. Irs amended tax forms You can generally deduct the cost of fringe benefits. Irs amended tax forms You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Irs amended tax forms You also may not owe employment taxes on the value of the fringe benefits. Irs amended tax forms See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Irs amended tax forms Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Irs amended tax forms Certain fringe benefits are discussed next. Irs amended tax forms See Publication 15-B for more details on these and other fringe benefits. Irs amended tax forms Meals and lodging. Irs amended tax forms   You can usually deduct the cost of furnishing meals and lodging to your employees. Irs amended tax forms Deduct the cost in whatever category the expense falls. Irs amended tax forms For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Irs amended tax forms If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Irs amended tax forms Deduction limit on meals. Irs amended tax forms   You can generally deduct only 50% of the cost of furnishing meals to your employees. Irs amended tax forms However, you can deduct the full cost of the following meals. Irs amended tax forms Meals whose value you include in an employee's wages. Irs amended tax forms Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Irs amended tax forms This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Irs amended tax forms Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Irs amended tax forms Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Irs amended tax forms Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Irs amended tax forms This does not include meals you furnish on vessels primarily providing luxury water transportation. Irs amended tax forms Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Irs amended tax forms This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Irs amended tax forms Employee benefit programs. Irs amended tax forms   Employee benefit programs include the following. Irs amended tax forms Accident and health plans. Irs amended tax forms Adoption assistance. Irs amended tax forms Cafeteria plans. Irs amended tax forms Dependent care assistance. Irs amended tax forms Education assistance. Irs amended tax forms Life insurance coverage. Irs amended tax forms Welfare benefit funds. Irs amended tax forms   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Irs amended tax forms For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Irs amended tax forms ). Irs amended tax forms Life insurance coverage. Irs amended tax forms   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Irs amended tax forms See Regulations section 1. Irs amended tax forms 264-1 for more information. Irs amended tax forms Welfare benefit funds. Irs amended tax forms   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Irs amended tax forms Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Irs amended tax forms   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Irs amended tax forms If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Irs amended tax forms   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Irs amended tax forms The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Irs amended tax forms The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Irs amended tax forms These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Irs amended tax forms   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Irs amended tax forms Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Irs amended tax forms However, if the employee performs no services, treat the amount you advanced as a loan. Irs amended tax forms If the employee does not repay the loan, treat it as income to the employee. Irs amended tax forms Below-market interest rate loans. Irs amended tax forms   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Irs amended tax forms See Below-Market Loans in chapter 4. Irs amended tax forms Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Irs amended tax forms The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Irs amended tax forms You can claim the deduction only for the tax year in which your employee includes the property's value in income. Irs amended tax forms Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Irs amended tax forms You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Irs amended tax forms Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Irs amended tax forms These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Irs amended tax forms Restricted property. Irs amended tax forms   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Irs amended tax forms However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Irs amended tax forms    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Irs amended tax forms This means that the recipient is not likely to have to give up his or her rights in the property in the future. Irs amended tax forms Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Irs amended tax forms However, your deduction may be limited. Irs amended tax forms If you make the payment under an accountable plan, deduct it in the category of the expense paid. Irs amended tax forms For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Irs amended tax forms If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Irs amended tax forms See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Irs amended tax forms Sick and Vacation Pay Sick pay. Irs amended tax forms   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Irs amended tax forms However, your deduction is limited to amounts not compensated by insurance or other means. Irs amended tax forms Vacation pay. Irs amended tax forms   Vacation pay is an employee benefit. Irs amended tax forms It includes amounts paid for unused vacation leave. Irs amended tax forms You can deduct vacation pay only in the tax year in which the employee actually receives it. Irs amended tax forms This rule applies regardless of whether you use the cash or accrual method of accounting. Irs amended tax forms Prev  Up  Next   Home   More Online Publications
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The Irs Amended Tax Forms

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