Making cheese and the tax code

DJ delves into the convoluted, complicated US tax code as he attempts to determine how to value the cheese he makes for tax purposes.

It turns out that we will be valuing our cheese at cost this year.

We need that number because the deductible amount of the purchases, called Cost of Goods Sold or COGS, is calculated by taking the beginning inventory, adding the purchases, and subtracting the ending inventory.

Are you with me so far?

But here’s where it gets really fun: the federal government has determined that a manufacturing industry must determine how much other expense went into the production of our cheese. This is Section 263A of the tax code, so these expenses are typically referred to as 263A expenses.

And whatever you do, don’t forget the attribution rate, attribution expense, and most important, to round the totals to 5 decimal places either. This is required. Even if 0.00009 lbs. of cheese is maybe a tiny crumble or so.

My other business is preparing tax returns. The fact that I make my living from the complexity of government regulation is an embarrassment. I would much rather see a simpler tax code and find another line of work!

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