Fill - Free fillable Cost of Goods Sold F1125A PDF form

Form 1125-A

(Rev. November 2018)

Department of the Treasury

Internal Revenue Service

Cost of Goods Sold

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Attach to Form 1120, 1120-C, 1120-F, 1120S, or 1065.

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Go to www.irs.gov/Form1125A for the latest information.

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 . . . . . . . . . . . . . . .

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.)

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b Check if there was a writedown of subnormal goods . . . . . . . . . . . . . . . . . . . . . .

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c Check if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970) . . . . . .

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d If the LIFO inventory method was used for this tax year, enter amount of closing inventory computed

under LIFO . . . . . . . . . . . . . . . . . . . . . . . . . . .

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.

What's New

Small business taxpayers. For tax years

beginning after December 31, 2017, the

following apply.

• A small business taxpayer (defined

below), may use a method of accounting for

inventories that either: (1) treats inventories

as nonincidental materials and supplies, or

(2) conforms to the taxpayer's financial

accounting treatment of inventories.

• A small business taxpayer is not required

to capitalize costs under section 263A.

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, or 1065, 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. A small

business taxpayer (defined below), can

adopt or change its accounting method to

account for inventories in the same manner

as material and supplies that are non-

incidental, or conform to its treatment of

inventories in an applicable financial

statement (as defined in section 451(b)(3)),

or if it does not have an applicable financial

statement, the method of accounting used

in its books and records prepared in

accordance with its accounting

procedures. See section 471(c)(3).

A small business taxpayer claiming

exemption from the requirement to keep

inventories is changing its method of

accounting for purposes of section 481.

For additional guidance on this method of

accounting, see Pub. 538, Accounting

Periods and Methods. For guidance on

changing to this method of accounting, see

Form 3115 and the Instructions for Form

3115.

Small business taxpayer. A small

business taxpayer is a taxpayer that (a) has

average annual gross receipts of $25

million or less (indexed for inflation) for the

3 prior tax years, and (b) is not a tax shelter

(as defined in section 448(d)(3)). See Pub.

538.

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 for use in its

trade or business or in an activity engaged

in for profit.

A small business taxpayer (defined

above) is not required to capitalize costs

under section 263A. See section 263A(i).

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. 11-2018)

Page 2

Specific Instructions

Line 1. Inventory at Beginning of

Year

If you are changing your method of

accounting for the current tax year, you

must refigure last year's closing inventory

using the new method of accounting. Enter

the result on line 1. If there is a difference

between last year's closing inventory and

the refigured amount, attach an

explanation and take it into account when

figuring any section 481(a) adjustment.

Line 2. Purchases

Reduce purchases by items withdrawn for

personal use. For a partnership, the cost of

these items should be shown on Schedule

K and Schedule K-1 as distributions to

partners.

Line 4. Additional Section 263A

Costs

If you elected a simplified method of

accounting, enter on line 4 the balance of

section 263A costs paid or incurred during

the tax year not includible on lines 2, 3, and

If you elected the simplified production

method, additional section 263A costs are

generally those costs, other than interest,

that were not capitalized under your

method of accounting immediately prior to

the effective date of section 263A, but are

now required to be capitalized under

section 263A. For details, see Regulations

section 1.263A-2(b).

If you elected the simplified resale

method, additional section 263A costs are

generally those costs incurred with respect

to the following categories.

• Off-site storage or warehousing.

• Purchasing.

• Handling, such as processing,

assembling, repackaging, and transporting.

• General and administrative costs (mixed

service costs).

Line 5. Other Costs

Enter on line 5 any costs paid or incurred

during the tax year not entered on lines 2

through 4. Attach a statement listing details

of the costs.

Special Rules for Cooperatives

Cooperatives are allowed to deduct certain

per-unit retain allocations. Include these

costs on line 5. Attach a statement listing

details of per-unit retain allocations paid in:

• Qualified per-unit retain certificates,

• Money or other property (except

nonqualified per-unit certificates), and

• Nonqualified per-unit retain certificates

redeemed this year.

Per-unit retain allocations. A cooperative

is allowed to deduct from its taxable

income amounts paid during the payment

period for the tax year as per-unit retain

allocations to the extent paid in money,

qualified per-unit retain certificates, or

other property with respect to marketing

occurring during the tax year. A per-unit

retain allocation is any allocation from a

cooperative to a patron for products

marketed for him without reference to the

cooperative net earnings. A qualified per-

unit retain certificate is any per-unit retain

certificate that the distributee has agreed

to take into account at its stated dollar

amount.

Nonqualified per-unit retain certificates

redeemed this year. Include the amount

paid in money or other property (except

amounts already included as per-unit retain

certificates) to patrons to redeem

nonqualified per-unit retain certificates. No

deduction is allowed at the time of

issuance for a nonqualified per-unit retain

certificate. However, the cooperative may

take a deduction in the year the certificate

is redeemed, subject to the stated dollar

amount of the certificate. See section 1383.

Also see the instructions for Form 1120-C,

line 30h, for a special rule for figuring the

cooperative's tax in the year of redemption

of a nonqualified per-unit retain certificate.

Line 7. Inventory at End of Year

See Regulations sections 1.263A-1 through

1.263A-3 for details on figuring the amount

of additional section 263A costs to be

included in ending inventory.

Line 8. Cost of Goods Sold

Enter the amount from line 8 on your tax

return as follows. Filers of Form 1120,

1120-C, 1120S, and 1065, enter cost of

goods sold on page 1, line 2. Filers of Form

1120-F, enter cost of goods sold on

Section II, line 2.

Lines 9a Through 9f. Inventory

Valuation Methods

Inventories can be valued at:

• Cost,

• Cost or market value (whichever is lower),

• Any other method approved by the IRS

that conforms to the requirements of the

applicable regulations cited below.

Filers that use erroneous valuation

methods must change to a method

permitted for federal income tax purposes.

Use Form 3115 to make this change. See

the Instructions for Form 3115. Also see

Pub. 538.

Line 9a. Method of valuing closing

inventory. On line 9a, check the method(s)

used for valuing inventories. Under lower of

cost or market, the term “market” (for

normal goods) means the current bid price

prevailing on the inventory valuation date

for the particular merchandise in the

volume usually purchased by the filer. For a

manufacturer, market applies to the basic

elements of cost—raw materials, labor, and

burden. If section 263A applies, the basic

elements of cost must reflect the current

bid price of all direct costs and all indirect

costs properly allocable to goods on hand

at the inventory date.

Inventory may be valued below cost

when the merchandise is unsalable at

normal prices or unusable in the normal

way because the goods are subnormal due

to damage, imperfections, shopwear,

change of style, odd or broken lots, or

other similar causes, including second-

hand goods taken in exchange. The goods

may be valued at the bona fide selling

price, minus the direct cost of disposition

(but not less than scrap value). Bona fide

selling price means actual offering of

goods during a period ending not later than

30 days after inventory date.

Lines 9c and 9d. LIFO method. If this is

the first year the Last-in, First-out (LIFO)

inventory method was either adopted or

extended to inventory goods not previously

valued under the LIFO method provided in

section 472, attach Form 970, Application

To Use LIFO Inventory Method, or a

statement with the information required by

Form 970. Check the LIFO box on line 9c.

On line 9d, enter the amount of total

closing inventories computed under

section 472. Estimates are acceptable.

If you changed or extended your

inventory method to LIFO and had to write

up the opening inventory to cost in the year

of election, report the effect of the write-up

as other income, on your applicable return,

proportionately over a 3-year period that

begins with the year of the LIFO election.

Form 1125-A (Rev. 11-2018)

Page 3

Note: Entities using the LIFO method that

make an S corporation election or transfer

LIFO inventory to an S corporation in a

nonrecognition transaction may be subject

to an additional tax attributable to the LIFO

recapture amount. See the instructions for

Form 1120, Schedule J, line 11.

Line 9e. If property is produced or

acquired for resale and the rules of section

263A apply to the corporation, cooperative,

partnership, or other applicable entity,

check the “Yes” box on line 9e.

Paperwork Reduction Act Notice. We

ask for the information on this form to carry

out the Internal Revenue laws of the United

States. You are required to give us the

information. We need it to ensure that you

are complying with these laws and to allow

us to figure and collect the right amount of

tax.

You are not required to provide the

information requested on a form that is

subject to the Paperwork Reduction Act

unless the form displays a valid OMB

control number. Books or records relating

to a form or its instructions must be

retained as long as their contents may

become material in the administration of

any Internal Revenue law. Generally, tax

returns and return information are

confidential, as required by section 6103.

The time needed to complete and file

this form will vary depending on individual

circumstances. The estimated burden for

business taxpayers filing this form is

approved under OMB control number

1545-0123 and is included in the estimates

shown in the instructions for their business

income tax return.

If you have comments concerning the

accuracy of these time estimates or

suggestions for making this form simpler,

we would be happy to hear from you. See

the instructions for the tax return with

which this form is filed.

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