What expenses can I include in 1125-A Line 5 - Other Costs for my business?

Form 1125-A Line 5 "Other Costs" isn't actually where most of those expenses would go. The 1125-A is specifically for Cost of Goods Sold (COGS), so Line 5 is for other direct costs related to producing or acquiring your inventory. The expenses you mentioned (advertising, business travel, meals, entertainment, office supplies, dues, subscriptions) are generally business expenses that would go on Schedule C (if you're a sole proprietor) or Form 1120 (if you're a corporation) rather than on the COGS form. These are operating expenses, not direct costs of producing goods. Line 5 of Form 1125-A would typically include things like factory overhead, production supplies, or other direct costs that aren't materials, labor, or the other specific categories listed on the form.

I struggled with this exact form last year! I found this amazing resource at https://taxr.ai that helped me figure out where all my business expenses should go. You upload your tax documents and it analyzes everything for you, pointing out exactly which forms and lines different expenses should go on. For my small craft business, I was completely mixing up what should be on 1125-A versus Schedule C. The tool flagged that I was misclassifying my regular business expenses as COGS, which could have caused issues. It actually explained that advertising, travel, meals, etc. belong on Schedule C, while 1125-A Line 5 is for direct production costs like factory overhead.

Just wanted to follow up after trying taxr.ai for my business tax questions. I was completely mixing up what should go on 1125-A Line 5 versus other forms! The analysis showed me that I was incorrectly categorizing my advertising and subscription expenses as COGS when they should have been on my business tax form as regular operating expenses. It even caught that some of my manufacturing supplies SHOULD actually be on 1125-A Line 5 as direct production costs, which I had been putting elsewhere. Definitely cleared up my confusion about the "Other Costs" category. Saved me from what would have been a messy tax situation!

If you're still struggling to get clear answers about Form 1125-A or other tax questions, I'd recommend calling the IRS directly. I know getting through to them seems impossible (I spent DAYS trying), but I discovered https://claimyr.com which got me connected to an actual IRS agent in under 45 minutes! There's a demo video of how it works here: https://youtu.be/_kiP6q8DX5c I had major confusion about COGS categorization on 1125-A and needed official clarification. The IRS agent I spoke with explained exactly what qualifies for Line 5 "Other Costs" versus what should be deducted elsewhere. They confirmed that advertising, travel, etc. are NOT COGS expenses for 1125-A but are regular business deductions on your main business tax form.

I was SUPER skeptical about Claimyr (commented above), but I was desperate to talk to the IRS about my 1125-A categorization issues before filing. I decided to try it yesterday and... I'm honestly shocked. After months of failing to reach anyone at the IRS, I was connected to an agent in about 35 minutes. The agent clarified that for my online retail business, packaging materials should go on 1125-A Line 5 as "Other Costs" since they're directly related to preparing my products for sale, but my website hosting fees and advertising should go on my Schedule C. This was exactly the specific guidance I needed! Saved me from incorrectly categorizing several thousand dollars of expenses.

From my experience doing business taxes for years, here's a quick reference for Form 1125-A Line 5 (Other Costs): DO include: Factory overhead, production supplies, packaging materials used in production, quality control costs, certain factory utilities DON'T include: Advertising, travel, meals, entertainment, office supplies, dues, subscriptions (these all go on your main business tax form as operating expenses) Remember that 1125-A is strictly for Cost of Goods Sold calculation, which means direct costs related to producing or acquiring inventory items. Hope this helps!

Does anyone know if tax software like TurboTax or H&R Block handles the 1125-A form correctly? I'm worried my software might put expenses in the wrong place if I just follow the interview questions.

Something nobody mentioned yet - if you're including costs on Line 5 of 1125-A, make sure you keep DETAILED records! The IRS scrutinizes "Other Costs" more carefully because people often misclassify expenses there. Save all receipts and documentation showing how these costs directly relate to producing your goods. I got audited last year partly because I had a large amount in "Other Costs" without sufficient documentation to prove they were actually COGS-related expenses. Learned my lesson the hard way!

This is really helpful information everyone! As someone who's been struggling with business tax forms, I want to add that the IRS Publication 334 (Tax Guide for Small Business) has a decent section on Form 1125-A that might help clarify things. What I learned from reading it is that Line 5 "Other Costs" should only include costs that are both: 1) directly attributable to the goods you produce or sell, and 2) not already covered in the other specific lines on Form 1125-A. For most service businesses (like consulting, freelancing, etc.), you probably won't even need to file Form 1125-A at all since you don't have traditional "goods sold." The form is really meant for businesses that manufacture products or buy/sell inventory. If you're unsure whether your business needs this form, the general rule is: if you don't have beginning or ending inventory to track, you likely don't need 1125-A and should just put all your business expenses on Schedule C or the appropriate business tax form.

Great point about Publication 334! I'd also recommend checking out IRS Publication 538 (Accounting Periods and Methods) which has additional guidance on what constitutes cost of goods sold versus business expenses. One thing I've learned from working with small businesses is that the "directly attributable" test mentioned by Yara is key. Ask yourself: "Would this cost exist if I wasn't producing this specific product?" If the answer is no, it might belong on 1125-A Line 5. If the cost would exist regardless (like general office supplies or advertising), it's probably a regular business expense for Schedule C. For anyone still confused about whether they need Form 1125-A at all, here's a simple test: Do you have raw materials, work-in-process inventory, or finished goods inventory that you track from year to year? If not, you're probably a service business and can skip 1125-A entirely. This applies to most consultants, freelancers, and service providers. The distinction matters because misclassifying expenses can affect your tax liability timing and potentially trigger audits, as CyberSiren mentioned above.

I've been following this thread and wanted to share my experience as someone who went through this exact confusion last year. I run a small manufacturing business making custom furniture, and I was completely mixing up what belonged on Form 1125-A versus Schedule C. What finally clicked for me was understanding that Form 1125-A is ONLY for costs that directly go into making your products. For Line 5 "Other Costs," I include things like wood stain, sandpaper, protective finishes, and packaging materials - basically anything that becomes part of the finished product or is consumed during production. Meanwhile, my business insurance, advertising, truck payments for deliveries, and even my workshop rent all go on Schedule C because those are operating expenses that support the business but aren't directly incorporated into each piece of furniture I make. The key question I ask myself now is: "If I made 100 more units of this product, would this cost increase proportionally?" If yes, it's probably COGS for Form 1125-A. If it's a fixed cost that stays the same regardless of production volume, it goes on Schedule C. Hope this practical perspective helps others who are struggling with the same categorization issues!

This entire discussion has been incredibly helpful! I'm dealing with a hybrid situation where my business does both product sales and services, so I've been completely confused about when to use Form 1125-A versus just putting everything on Schedule C. Reading through everyone's experiences, I think I finally understand the key distinction. For my business, I sell handmade jewelry (physical products with inventory) AND offer custom design consultations (pure service). For the jewelry side, materials like silver wire, beads, clasps, and even the small jewelry boxes I put finished pieces in would go on Form 1125-A since they're directly incorporated into the final products I sell. But my design software subscription, business cards, website hosting, and consultation fees would all be Schedule C operating expenses. Melina's "100 more units" test is perfect for this - if I made 100 more necklaces, I'd need 100 more sets of materials and packaging, but I wouldn't need 100 times more website hosting or business insurance. The real lightbulb moment for me was Yara's point about service businesses often not needing Form 1125-A at all. For my consultation work, there's no inventory or direct production costs, so those revenues and related expenses stay entirely on Schedule C. Thank you everyone for sharing your real-world examples - this has been way more helpful than any official IRS publication I've tried to read!

This has been such an enlightening discussion! As someone who just started a small business this year, I was completely overwhelmed by Form 1125-A and had no idea what qualified for Line 5 "Other Costs." The real-world examples from Melina's furniture business and Cass's jewelry/consultation hybrid really drove home the core concept for me. I keep coming back to that "100 more units" test - it's such a practical way to distinguish between direct production costs (Form 1125-A) and general operating expenses (Schedule C). What I found most valuable was learning that many service-based businesses don't even need Form 1125-A at all. I was stressing about this form for my tutoring business, but since I don't have any physical inventory or raw materials, all my expenses (books, supplies, software subscriptions) just go on Schedule C as regular business expenses. For anyone else feeling overwhelmed by this form, I'd definitely recommend starting with the inventory question that several people mentioned: Do you track raw materials or finished goods from year to year? If not, you might be able to skip 1125-A entirely and focus on properly categorizing expenses on Schedule C instead. The documentation point from CyberSiren about keeping detailed records is also crucial - especially if you do have legitimate "Other Costs" for Line 5. The last thing anyone wants is an audit because of unclear expense categorization!