Give us a call and we’ll walk you through it in plain English. No tax talk, no alphabet soup.
But first, read this.
Most contractors hear the word COGS and think:
“I build stuff. I don’t speak tax“
Fair. So, here’s the simple version you actually need.
What the Heck Is a “COGS”? (Contractor Version)
COGS (Cost of Goods Sold) is just a fancy tax word for:
The stuff you buy that becomes part of the thing you are building.
It doesn’t matter where you build it:
- at the customer’s house
- in your shop
- in your garage
If it becomes part of the final product, it goes in this bucket. That’s it.
Bucket 1: Materials (Because They Become Part of the Job)
These are things you use up or attach to the project and they stay there forever.
Examples for ANY trade:
- wood
- nails
- screws
- shingles
- concrete
- brackets
- pipes
- wire
- fittings
- screens
- paint/stain
- caulk
- insulation
- trim
- hardware
- anything you pre-build in your shop that ends up installed
If it becomes part of the finished product, it goes in the materials bucket.
Items that are NOT materials:
- your tools
- your equipment
- anything you reuse
- anything you take home
Bucket 2: Expenses (Because You Keep Them)
These are things you own, reuse, or take back home.
- drills
- saws
- ladders
- nail guns
- compressors
- reusable tools
- safety gear
- shop equipment
- tool belts
- measuring tools
- anything you bring home at the end of the day
If you keep it, it’s an expense, not materials.
The Only Rule You Need To Remember
Here’s the plain-English version that works for ALL contractors:
If it becomes part of the thing you’re building = materials
If you take it back home = expense
Doesn’t matter where you build it, what trade you’re in, pre-build it in your shop or installed on-site.
This rule works every time.
Why This Matters
Keeping these two buckets clean helps:
- your taxes stay correct
- your books make sense
- your accountant stops asking the same questions
- you avoid IRS headaches later
- you know your real profit on each job
And it keeps everything simple for you
Still Not Sure What Goes Where?
Send us a message and we will walk you through it step-by-step.
