Proper categorization of payroll cost for 1120s Federal S-Corp Tax Return

Question

1. When completing an 1120S for a federal tax return for an S-Corp in the income category and subcategory of cost of goods: cost of labor is included. Then in the deductions area payroll is included. Cost of labor and payroll are the same deduction. Which is proper designation for this deduction? In the cost of goods category or under payroll? A duplicate deduction results if you enter the cost of labor in the subcategory cost of goods of the income category and payroll in the deductions category.

Answer 1

"Cost of Labor" under Costs of Goods Sold only relates to manufacturers.  If the company is not a manufacturer, all labor costs go in payroll.  If the company is a manufacturer, the labor costs directly related to the manufacture of the products goes under Costs of Labor under Cost of Goods Sold.  The salaries and wages of all other personnel (Sales, Admin., etc.) go under payroll.

Answer 2

You only enter the cost once.  The IRS makes anything related to inventory be added to inventory.

Answer 3

Wayne Z. is correct.  Only if the company is subject to the uniform capitalization rules (generally manufacturers and larger construction companies) do any labor costs get included in inventory and COGS.  Only direct labor expense goes to inventory/COGS on Schedule A, while office, sales, and administrative payrolls go on page 1.