Form 1125-A, Cost of Goods Sold
Form 1125-A calculates cost of goods sold for businesses that make or resell products. It attaches to the main business return, where the result becomes a deduction against gross receipts.
This is the genuine IRS PDF, unmodified. Source: IRS official page.
What is 1125-A?
Businesses that produce or purchase goods for resale figure their cost of goods sold on Form 1125-A and attach it to their income tax return: Form 1120, 1120-C, 1120-F, 1120-S, or 1065. The computation is the classic inventory formula: beginning inventory, plus purchases, labor, and other costs, minus ending inventory.
The form also asks about the inventory valuation method (cost, lower of cost or market, or other), whether LIFO was adopted, and whether the rules of section 263A on capitalizing additional costs apply to the filer. Small business taxpayers under the gross receipts test may be exempt from some inventory accounting requirements; the current instructions explain the threshold.
Who files 1125-A?
- C corporations and S corporations claiming a cost of goods sold deduction on Forms 1120 or 1120-S
- Partnerships claiming the deduction on Form 1065
- Foreign corporations and cooperatives filing Forms 1120-F or 1120-C with inventory costs
- Service businesses with no goods sold do not need this form
How to fill out 1125-A
- Enter inventory at the beginning of the year on line 1.
- Add purchases, cost of labor, section 263A costs, and other costs on lines 2 through 5, and total them.
- Enter inventory at the end of the year and subtract it to get cost of goods sold.
- Answer the questions about valuation method, LIFO, and section 263A.
- Download the completed PDF and attach it to your Form 1120, 1120-S, 1065, or other main return; the cost of goods sold figure carries to that return’s income section.
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Frequently asked questions
Who is required to attach Form 1125-A?
Any filer of Form 1120, 1120-C, 1120-F, 1120-S, or 1065 that reports a deduction for cost of goods sold. If your business has no inventory or goods sold, skip the form entirely.
What goes into "other costs" on line 5?
Indirect costs allocable to producing or acquiring the goods, such as freight-in, overhead, and containers, plus any additional costs required to be capitalized under section 263A. Attach a statement listing them.