Cost of Goods Sold Tax Question?

[alex11]

This is my first year filing taxes for actually selling a product, this is a sole proprietorship.
I am filling out schedule C(Cost of Goods Sold) section.


I have a product that is manufactured by my supplier, shipped to me, then stored and shipped to the customer from my location.


I also order shipping tubes that I package this product up in when shipping. I ordered 500 shipping tubes last year and used 350 of them.


Do these shipping tubes go under normal expenses or are they are part of Cost of Goods Sold? If they go under normal expenses do I only take the deduction on the 350 that were used or the full 500 that were purchased.

 

[Peter]

If you are filing Schedule C on a cash basis then I would take the cost of the full 500 shipping tubes.

Another thing to consider is state sales tax. I can only speak from experience in California, but either you or your supplier needs to pay sales tax on the products sold. I got caught out on this once; my supplier was assuming that I would pay the tax and add it to my sales price. They should have asked me for a resale certificate, but they never did. A couple of years later it got caught during an audit.

Fortunately I was able to bill my customer for the tax and pay it to the State without any late penalties.

Of course this is a non-issue if you are in a State with no sales tax!

 

[pb4uski]

Pub 334 "Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. If they are not an integral part of the manufactured product, their costs are shipping or selling expenses."

In your situation it seems to me these are shipping supplies rather than cost of goods sold. As I understand your OP, these tubes are used in shipping the product to the customer and not part of the packaging of the item.

If you are cash basis, then expense cost of the 500. If not, then expense the cost of the 350 used.

 

[alex11]

Thanks for the replies.
I assumed I was going to use Cash Basis, being able to write the whole 500 shipping tubes off as an expense confuses me a bit.

1. Is this only because it is an expense and not the actual product?
So basically I bought enough packaging tape, paper and peanuts to last about 10 years. I can go ahead and expense the entire amount off this year?

2. I assume the product itself still needs to be calculated as inventory under Cost Of Goods sold?
Example I bought 5,000 of the product and sold 2,000 this year. I am only able to write of the 2,000 sold correct?

3. To Peter: I currently charge sales tax to only the people purchasing from my state. I then pay the sales tax collected to the state twice a year. This sales tax is currently included in my gross receipts, is there a certain spot on the federal to write this off on?