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I file taxes as a sole proprietor and this is my first year doing my own taxes and tracking my own books. I'm curious to know how I should be accounting for different expenses, particularly materials, supplies and office expenses.

Let's say for example I'm doing a siding and gutter job. Some of my expenses would include metal to make the gutter, siding, nails, hammers etc.

What confuses me the most is the difference between COGS and non-COGS expenses. Would the metal used to make the gutter (we use our own gutter machines) be considered a COGS expense or not? How about the siding? Nails? What about the gutter machine itself? I assume the hammer is not considered a COGS expense so would it simply be considered as Supplies (not COGS)?

Any help on this topic will be greatly appreciated!

Thanks
 

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Welcome to CT. As a courtesy heads up, you will get a lot of helpful info from posters here provided you follow the protocol of the site. (Namely fill out you profile including area and do a a short intro explaining your business, how long you've been at it, etc.)

Good to have you here.
 

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I file taxes as a sole proprietor and this is my first year doing my own taxes and tracking my own books. I'm curious to know how I should be accounting for different expenses, particularly materials, supplies and office expenses.

Let's say for example I'm doing a siding and gutter job. Some of my expenses would include metal to make the gutter, siding, nails, hammers etc.

What confuses me the most is the difference between COGS and non-COGS expenses. Would the metal used to make the gutter (we use our own gutter machines) be considered a COGS expense or not? How about the siding? Nails? What about the gutter machine itself? I assume the hammer is not considered a COGS expense so would it simply be considered as Supplies (not COGS)?

Any help on this topic will be greatly appreciated!

Thanks

It's a bit more complicated because of accounting rules. With tools you may have the additional issue of depreciation, with your metal you may have the additional issue of it being inventory. Think about for instance if you buy 30 2x4s for a job, those are direct materials for the job, they are a direct job expense, now think about ordering 1000 2x4s and using some on this job, some on that job, some more on this other job... you'd like to expense the full 1000 2x4s as soon as you buy them and write them off against income, but you can't you can only write off the ones you used on jobs.

Like I said it's going to get a lot more complicated then you are thinking very quickly.

My advice is to find yourself a good accountant with construction clients already and pay him/her for a few hours of tutoring you on some of the basics of accounting. That's really where it starts. If you spend the entire year 'doing' your books and then at the end of the year dump all your f'd up years worth of mess on an accountant for the first time you're going to be in a world of sh*t. Much better to have an accountant help you set up your books the right way, the first day you open for business and then you are doing things at least maybe 75% correctly.:thumbsup:
 
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