Form 1125-A
(Rev. October 2016)
Department of the Treasury
Internal Revenue Service
Cost of Goods Sold
▶
Attach to Form 1120, 1120-C, 1120-F, 1120S, 1065, or 1065-B.
▶
Information about Form 1125-A and its instructions is at www.irs.gov/form1125a.
OMB No. 1545-0123
Name Employer identification number
1 Inventory at beginning of year . . . . . . . . . . . . . . . . . . . . . 1
2 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Cost of labor . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 Additional section 263A costs (attach schedule) . . . . . . . . . . . . . . . . 4
5 Other costs (attach schedule) . . . . . . . . . . . . . . . . . . . . . 5
6 Total. Add lines 1 through 5 . . . . . . . . . . . . . . . . . . . . . . 6
7 Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . 7
8 Cost of goods sold. Subtract line 7 from line 6. Enter here and on Form 1120, page 1, line 2 or the
appropriate line of your tax return. See instructions . . . . . . . . . . . . . . .
8
9a Check all methods used for valuing closing inventory:
(i)
Cost
(ii)
Lower of cost or market
(iii)
Other (Specify method used and attach explanation.)
▶
b Check if there was a writedown of subnormal goods . . . . . . . . . . . . . . . . . . . . . .
▶
c Check if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970) . . . . . .
▶
d If the LIFO inventory method was used for this tax year, enter amount of closing inventory computed
under LIFO . . . . . . . . . . . . . . . . . . . . . . . . . . .
9d
e If property is produced or acquired for resale, do the rules of section 263A apply to the entity? See instructions . . Yes No
f Was there any change in determining quantities, cost, or valuations between opening and closing inventory? If “Yes,”
attach explanation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yes No
Section references are to the Internal
Revenue Code unless otherwise noted.
General Instructions
Purpose of Form
Use Form 1125-A to calculate and deduct
cost of goods sold for certain entities.
Who Must File
Filers of Form 1120, 1120-C, 1120-F,
1120S, 1065, or 1065-B, must complete
and attach Form 1125-A if the applicable
entity reports a deduction for cost of goods
sold.
Inventories
Generally, inventories are required at the
beginning and end of each tax year if the
production, purchase, or sale of
merchandise is an income-producing
factor. See Regulations section 1.471-1. If
inventories are required, you generally
must use an accrual method of accounting
for sales and purchases of inventory items.
Exception for certain taxpayers. If you
are a qualifying taxpayer or a qualifying
small business taxpayer (defined below),
you can adopt or change your accounting
method to account for inventoriable items
in the same manner as materials and
supplies that are not incidental.
Under this accounting method, inventory
costs for raw materials purchased for use
in producing finished goods and
merchandise purchased for resale are
deductible in the year the finished goods or
merchandise are sold (but not before the
year you paid for the raw materials or
merchandise, if you are also using the cash
method).
If you account for inventoriable items in
the same manner as materials and supplies
that are not incidental, you can currently
deduct expenditures for direct labor and all
indirect costs that would otherwise be
included in inventory costs. See the
instructions for lines 2 and 7.
For additional guidance on this method
of accounting, see Pub. 538, Accounting
Periods and Methods. For guidance on
adopting or changing to this method of
accounting, see Form 3115, Application for
Change in Accounting Method, and its
instructions.
Qualifying taxpayer. A qualifying
taxpayer is a taxpayer that, (a) for each
prior tax year ending after December 16,
1998, has average annual gross receipts of
$1 million or less for the 3 prior tax years,
and (b) its business is not a tax shelter (as
defined in section 448(d)(3)). See Rev.
Proc. 2001-10, 2001-2 I.R.B. 272.
Qualifying small business taxpayer. A
qualifying small business taxpayer is a
taxpayer that, (a) for each prior tax year
ending on or after December 31, 2000, has
average annual gross receipts of $10
million or less for the 3 prior tax years, (b)
whose principal business activity is not an
ineligible activity, and (c) whose business is
not a tax shelter (as defined in section 448
(d)(3)). See Rev. Proc. 2002-28, 2002-18
I.R.B. 815.
Uniform capitalization rules. The uniform
capitalization rules of section 263A
generally require you to capitalize, or
include in inventory, certain costs incurred
in connection with the following.
• The production of real property and
tangible personal property held in inventory
or held for sale in the ordinary course of
business.
• Real property or personal property
(tangible and intangible) acquired for resale.
• The production of real property and
tangible personal property by a corporation
for use in its trade or business or in an
activity engaged in for profit.
See the discussion on section 263A
uniform capitalization rules in the
instructions for your tax return before
completing Form 1125-A. Also see
Regulations sections 1.263A-1 through
1.263A-3. See Regulations section
1.263A-4 for rules for property produced in
a farming business.
For Paperwork Reduction Act Notice, see instructions.
Cat. No. 55988R
Form 1125-A (Rev. 10-2016)
