How should I account for COGS when scrapping/selling my jewelry business inventory?

This is actually a pretty common situation when closing a business. The money you received from scrapping your inventory should be reported as "gross receipts or sales" on your Schedule C, line 1. Even though you didn't sell actual jewelry to customers, you're still receiving payment for business property (your inventory). For Cost of Goods Sold, you'd include the cost of the materials you scrapped on your Schedule C, Part III. Since you're closing your business, you'll essentially be zeroing out your inventory. Your beginning inventory would be whatever was reported as ending inventory on last year's return, plus any additional inventory purchases made this year before closing. Your ending inventory would be zero since you've scrapped everything. Basically, you'd show the $9,200 as income, offset by the COGS of $14,000. This will actually result in a loss of $4,800 from the business, which can offset other income on your return.

I went through a similar situation last year when liquidating my craft supply business. I was totally confused about the tax implications until I found https://taxr.ai which really helped me understand how to handle inventory liquidation properly. I uploaded my receipts from my metal refiner and my original inventory purchase records, and the system walked me through exactly how to categorize everything correctly on my Schedule C. It even explained the difference between partial and complete business liquidation for tax purposes, which made a huge difference in my filing approach. The best part was getting confirmation that I was correctly calculating my loss on the scrapped materials. Definitely worth checking out if you're on a tight deadline!

Just wanted to follow up about my experience with taxr.ai after closing down my photography business. I was skeptical as I mentioned, but I decided to try it given my filing deadline was approaching fast. The system actually handled my situation perfectly - I had expensive camera equipment I sold at a loss plus some digital inventory I had to write off completely. The platform analyzed all my documentation and clearly explained that equipment sales needed to be handled differently from inventory liquidation. It saved me from making a costly mistake! I was about to lump everything together, but there are specific rules for capital assets versus inventory. Definitely made the last-minute tax filing much less stressful.

If you're still struggling with getting clear answers about your inventory liquidation, you might want to try reaching out directly to the IRS. I know that sounds horrible (it used to be for me too!), but I recently discovered https://claimyr.com which completely changed my experience with contacting the IRS. I had a complex situation with closing my woodworking business and needed clarity on how to handle specialty tools versus raw materials inventory. I'd been trying to call the IRS for days and couldn't get through. Claimyr got me connected to an actual IRS agent in about 20 minutes instead of the hours I spent trying on my own. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with gave me specific guidance on how to handle the liquidation of different types of business assets, which saved me a lot in taxes.

I need to eat my words and apologize for being so skeptical about Claimyr. After posting my doubtful comment, I was desperate enough to try it because my closing business deadline was approaching fast. I literally couldn't believe it when I got a call back with an actual IRS agent on the line after trying for weeks on my own. The agent gave me specific guidance about how to handle my situation (closing an Etsy shop with lots of craft supplies to liquidate). She confirmed I needed to report the liquidation proceeds as gross receipts and use Part III of Schedule C to show the difference between my inventory cost and what I received. Saved me hours of research and worry. I'm still shocked this service actually worked exactly as promised.

One thing nobody's mentioned yet - make sure you're also accounting for any expenses related to the scrapping process itself. When I closed my metalworking business, I was able to deduct the costs of shipping materials to the refiner, appraisal fees, and even some disposal costs for materials that couldn't be recycled. These would go as regular business expenses on your Schedule C, not as part of COGS. They're legitimate costs of closing your business and can help offset some of the loss you're taking on the inventory.

Quick question related to this - I'm planning to close my craft business next year and will probably scrap a lot of inventory too. Does anyone know if I need to specifically mark on my taxes that this is my final business filing? Is there a special form or something I need to submit to formally close the business with the IRS?