1125-A: Cost of Goods Sold (Revision 2024-11)
Federal · IRS · Used for tax years 2024, 2025
Form 1125-A is used to figure and deduct cost of goods sold for certain entities. It reports beginning and ending inventory, purchases, labor and other costs, and inventory accounting methods.
Who files this form
Filers of Form 1120, 1120-C, 1120-F, 1120S, or 1065 must complete and attach Form 1125-A if the entity reports a deduction for cost of goods sold.
Use Form 1125-A to figure that deduction.
What you'll need
Have the following information ready:
- The entity’s name and employer identification number.
- Beginning and ending inventory amounts.
- Purchases, labor costs, additional section 263A costs, and other costs.
- Inventory valuation methods and, if used, closing LIFO inventory and the closing LIFO Reserve.
Attach supporting information when applicable:
- Schedules for additional section 263A costs on line 4 and other costs on line 5.
- An explanation of an “Other” inventory valuation method on line 9a(iii).
- An explanation if quantities, costs, or valuations were determined differently between opening and closing inventory.
- Form 970, or a statement containing the information it requires, if LIFO was first adopted or extended to additional inventory goods during the year.
- An explanation if changing accounting methods produces a difference between last year’s closing inventory and the refigured beginning inventory.
How to file
Attach Form 1125-A to your Form 1120, 1120-C, 1120-F, 1120S, or 1065.
Add lines 1 through 5 and enter the total on line 6. Subtract ending inventory on line 7 from line 6 to figure cost of goods sold on line 8.
Transfer line 8 to your tax return:
- Forms 1120, 1120-C, 1120S, and 1065: Page 1, line 2.
- Form 1120-F: Section II, line 2.
The supplied text does not provide a mailing address or e-filing directions.
Common mistakes
- Including personal-use items in purchases. Reduce purchases by items withdrawn for personal use. Partnerships should show their cost as distributions to partners on Schedule K and Schedule K-1.
- Changing an established inventory method without requesting an accounting method change. The text directs filers to the Instructions for Form 3115.
- Using the wrong inventory-method boxes. Certain small business taxpayers using an alternative inventory accounting method should check the applicable box on lines 9a(iv) through 9a(vi), instead of lines 9a(i) through 9a(iii).
- Missing parentheses for a negative LIFO Reserve. If the closing LIFO Reserve is negative, enter it in parentheses on line 9d(ii).
Questions people ask
Are beginning and ending inventories required?
Generally, yes, if producing, purchasing, or selling merchandise is an income-producing factor. If inventories are required, you generally must use an accrual method for sales and purchases of inventory items.
Can a small business taxpayer use an alternative inventory method?
Yes. A small business taxpayer can treat inventory as non-incidental materials and supplies or follow its inventory treatment in an applicable financial statement. If it has no applicable financial statement, it can use the method in its books and records prepared according to its accounting procedures.
Must a small business taxpayer capitalize costs under section 263A?
No. The text states that a small business taxpayer is not required to capitalize costs under section 263A.
What belongs on line 5, Other Costs?
Enter costs paid or incurred during the tax year that were not entered on lines 2 through 4. Attach a statement listing the details.