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COGS is required in tax returns. For example, sole proprietors and LLCs need to use a Schedule C, whereas an S corporation needs to include COGS in Form 1120 or Form 1120-S. Consult with your accountant or tax advisor to ensure you complete the proper IRS form(s).
Inventory, net purchases, cost of labor, materials and supplies, and other costs are added together. Inventory at the end of the year is subtracted from this total to determine COGS.
Certain entities with total receipts of $500,000 or more use Form 1125-E to provide a detailed report of the deduction for compensation of officers.
Form 1125-A is an IRS tax form used by businesses to report their cost of goods sold (otherwise known as COGS). This information is used in conjunction with the parent filing to calculate the businesss gross profit for the year.
The cost of labor is the sum of all wages paid to employees, as well as the cost of employee benefits and payroll taxes paid by an employer. The cost of labor is broken into direct and indirect (overhead) costs.
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Form 1125-A is a document corporations and partnerships use to provide a detailed breakdown of the cost of goods sold. This form captures information about the beginning and ending inventories, purchases, labor costs, and other related expenses.
Form 1125-A is typically only required for businesses that have an inventory as it is concerned with COGS. If you are a sole proprietor filing under a pass-through tax structure, you may need to instead file a Schedule C as an additional form to your personal return.

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