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By Jean Murray, About.com Guide to Business Law / Taxes: U.S.

Tax Cut and Turbo Tax for Calculating Cost of Goods Sold

Monday January 5, 2009

I'm still working on business returns using Turbo Tax and Tax Cut. My latest project has been calculating cost of goods sold, because I wante to see how these products handled Cost of Goods Sold for products and inventory, which can be pretty tricky. . I completed the calculations for a sole proprietorship using the Schedule C form, on Turbo Tax Home & Business and Tax Cut Home & Business. Here is what I found:

Finding the COGS Section
Since I had already started a return, I had to go back and find the section about COGS. For both products, I had to do some hunting to find the COGS calculation. On both products, I had to ask for help. With TurboTax, I sent an email to the Online Community. I received several responses. One of them led me to the page (I would not have thought to find it there). With Tax Cut, I sent a "help" request. I was told there was no such page as "Cost of Goods Sold." I had to hunt around on my own to find the correct page.

Information about COGS
Both products had minimal information about COGS, but Turbo Tax had more than Tax Cut. Tax Cut merely sent me to the IRS information sheet for the Schedule C. Turbo Tax provided a short video and some links with more information. As I stated above, neither mentioned LIFO or FIFO.

Cost of Goods Sold Calculations
Neither program did any more than just ask you for your totals for beginning inventory, purchases, sales, and ending inventory. There are no mention by either program of LIFO or FIFO, or cash vs. accrual accounting. So, if your COGS calculations are complex, don't count on either of these programs being able to do them for you or to give you answers.

In Conclusion
The interview for TurboTax was clearer and had more supporting information than Tax Cut. But if you have inventory and need to do a COGS calculation, don't count on either program to do it for you. Gather all the information, talk to your CPA or tax adviser, and do your COGS calculations before you use either of these tax programs.
I also attempted to do a COGS calculation for a subchapter-s corporation on Form 1120S, and I was able to do that on TurboTax, but not on Tax Cut, because they still don't have the federal interview available.

Here are my previous posts on this subject, so you can see my comments:
Turbo Tax vs. Tax Cut for Corporate Taxes
Pricing Update for Tax Cut and Turbo Tax
Turbo Tax and Tax Cut On Depreciation Deduction Calculations

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