Supplies or Inventory

Dear June:

Each year at tax time we have difficulty choosing a category for products purchased for my wife's hair salon. She is an INDIE, a cosmetologist who leases her own shop. We try to put things in the categories listed in your book, but are a little confused about colors, shampoo,foils etc. that are used on clients directly, products purchased for retail and then supplies like cookies, flowers, decorations for the shop etc.

We keep more detailed records for our own purposes to tract individual client expenses, but for tax purposes we wonder what we can lump together.

Thanks for Your help,
William for Joyce


Dear William,

You may group together the supplies that are used directly on clients as well as cookies, flowers, etc. In other words, those things that you use, or use up.

Things that you sell are part of your inventory. You need to calculate the value of what you have on January 1. Add to that what you purchase during the year. Subtract from that amount the value of what you still have left to sell on December 31. That ending amount is the cost of what you sold for the year. It is called Cost Of Goods Sold ... COGS.

Best,
June