Demystifying Cost of Goods Sold for Amazon Sellers

When the calendar switches to a new year, business owners from all over the United States breathe a collective sigh. You can almost hear it. This tells you that it’s almost time to deal with terms such as Cost of Goods Sold during tax season.

This is not exactly the most popular time of year for many business owners. It is that time of year when invoices, receipts, and other financial records are gathered together, so these entrepreneurs can see how much they owe the government.

Amazon Cost of Goods Sold

Online businesses are not immune to this. You probably are feeling the same pressure as tax time gets nearer and nearer. When I first started selling I Amazon, I was told “cost of goods sold” is an important term to understand during tax season.

What the heck does “cost of goods sold” mean? This article defines what the term means, how it’s calculated, and how to estimate, for tax purposes, your inventory’s value.

Defining the Cost of Goods Sold Formula:

Business tax returns require that you supply COGS (cost of goods sold). This amount reduces your business income. It has the effect of DECREASING the amount of business taxes you have to pay.

It is important that you get this number right so you can reduce your tax liability. WOHOOO!!!

To calculate COGS formula, you have to take into account all the costs involved in producing or buying the products you have sold. Calculating these expenses can get quite messy. This is especially true if you manufacture or sell many different product lines.

What follows is a step by step guide that helps you calculate COGS. This is a manual process.

If you already chose automated tools like the inventory control software we offer at taxomate, you should still read the information below. It gives you a clear understanding of the COGS concept and the numbers you need to calculate it.

Leave a Reply

Your email address will not be published. Required fields are marked *