Does COGS vs Expenses make a difference in that distinction at all on taxes?

If something was changed to a COG but really wasn’t a direct expense for the sale, or vice-versa, does that impact anything on taxes? I get the importance of understanding it for management, pricing, and reporting purposes for just running the business, but is there any distinction for taxes that make a difference?

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  1. 74 Answers

    Hi there, for tax purposes there is no effect of moving items from COGS to Expense or vice versa, the net income (which is what is taxable) will remain the same. COGS is strictly for reporting purposes to evaluate your gross profit margins. Anything in COGS should be directly related to the service or products provided by the company. Generally expenses are operational cost such as payroll, rent, insurance, etc. I hope this helps!

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