1125-A

Cost of Goods Sold

Agency
IRS
Revision
Rev. November 2024
Fillable fields
25
Pages
3
Official source
IRS form page
Checked
October 21, 2026
Fill 1125-A online
Page 1 of form 1125-A

Form 1125-A: Cost of Goods Sold

Form 1125-A is used to figure and deduct cost of goods sold for certain entities. The instructions say filers of Form 1120, 1120-C, 1120-F, 1120S, or 1065 complete and attach Form 1125-A if the applicable entity reports a deduction for cost of goods sold.

Lines 1 through 8 start with inventory at the beginning of the year, add purchases, labor, additional section 263A costs and other costs, then subtract inventory at the end of the year to reach cost of goods sold. Line 9 records the inventory valuation methods, LIFO details, section 263A and any change in how inventory was valued. The What's New section says that for tax years beginning after December 31, 2023, a small business taxpayer using an alternative method of accounting for inventories checks the applicable box on lines 9a(iv) through 9a(vi).

The form is attached to the business return. You can fill it out free in your browser on this page and download the result without an account.

What's on Form 1125-A

Lines 1 to 5: inventory and costs

Inventory at beginning of year, purchases, cost of labor, additional section 263A costs and other costs, with a schedule attached for lines 4 and 5.

Lines 6 to 8: cost of goods sold

Line 6 adds lines 1 through 5, line 7 is inventory at end of year, and line 8 subtracts line 7 from line 6.

Line 9a: valuation methods

Boxes for cost, lower of cost or market and other, then the small business methods: non-incidental materials and supplies, AFS and non-AFS.

Lines 9b to 9d: writedowns and LIFO

A box for a writedown of subnormal goods, a box if the LIFO method was adopted this tax year, and the LIFO closing inventory and closing LIFO Reserve amounts.

Lines 9e and 9f: section 263A and changes

Yes or No on whether the section 263A rules apply to property produced or acquired for resale, and on any change in determining quantities, cost or valuations.

How to fill out Form 1125-A

  1. 1

    Line 1

    Enter inventory at the beginning of the year. The instructions say that when the method of accounting changes for the current tax year, last year's closing inventory is refigured using the new method, with an explanation attached for any difference.

  2. 2

    Lines 2 and 3

    Enter purchases, reduced by items withdrawn for personal use, and the cost of labor.

  3. 3

    Lines 4 and 5

    On line 4, enter additional section 263A costs under an elected simplified method and attach a schedule. On line 5, enter other costs not on lines 2 through 4 and attach a statement listing them. Cooperatives include per-unit retain allocations on line 5.

  4. 4

    Lines 6 to 8

    Add lines 1 through 5, enter ending inventory on line 7, and subtract it to get line 8. Filers of Form 1120, 1120-C, 1120S and 1065 enter line 8 on page 1, line 2, and Form 1120-F filers use Section II, line 2.

  5. 5

    Line 9a

    Check every method used for valuing closing inventory on lines 9a(i) through 9a(iii). Certain small business taxpayers using an alternative method check a box on 9a(iv) through 9a(vi) instead.

  6. 6

    Lines 9b to 9f

    Check 9b for a writedown of subnormal goods. If LIFO was first adopted this year, check 9c and attach Form 970 or a statement with its information, then enter LIFO amounts on 9d, with a negative LIFO Reserve in parentheses. Answer 9e and 9f, attaching an explanation if 9f is Yes.

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Where it goes, attachments and method changes

Where it goes

The form says to attach it to Form 1120, 1120-C, 1120-F, 1120S, or 1065.

Where line 8 goes

Page 1, line 2 of Form 1120, 1120-C, 1120S or 1065, or Section II, line 2 of Form 1120-F.

Attachments

Schedules for lines 4 and 5, Form 970 when LIFO is first adopted, and explanations for a refigured line 1, an other method on line 9a(iii) and a Yes on line 9f.

Changing methods

The instructions say a valuation method, once established, cannot be changed in a later year without requesting a change in accounting method, and point to the Instructions for Form 3115.

LIFO recapture

The instructions note that entities using LIFO that make an S corporation election or transfer LIFO inventory to an S corporation in a nonrecognition transaction may be subject to an additional tax attributable to the LIFO recapture amount.

Related forms

Who files Form 1125-A?

  • Corporations filing Form 1120

    A corporation that reports a deduction for cost of goods sold on Form 1120 attaches Form 1125-A and enters line 8 on page 1, line 2.

  • S corporations filing Form 1120-S

    Form 1120S filers are on the form's Who Must File list. The instructions also note LIFO recapture rules tied to an S corporation election.

  • Cooperatives filing Form 1120-C

    The instructions have special rules for cooperatives, which include per-unit retain allocations on line 5 and attach a statement listing them.

  • Foreign corporations filing Form 1120-F

    The instructions say filers of Form 1120-F enter cost of goods sold on Section II, line 2.

  • Partnerships filing Form 1065

    For a partnership, the instructions say the cost of items withdrawn for personal use is shown on Schedule K and Schedule K-1 as distributions to partners.

The form is completed by the business entity whose return reports a deduction for cost of goods sold, and attached to that return.

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Questions about Form 1125-A

Who attaches Form 1125-A?

The instructions say filers of Form 1120, 1120-C, 1120-F, 1120S, or 1065 complete and attach it if the applicable entity reports a deduction for cost of goods sold.

Where does the line 8 amount go?

On page 1, line 2 of Form 1120, 1120-C, 1120S or 1065. Filers of Form 1120-F enter it on Section II, line 2.

What changed in the November 2024 revision?

The What's New section says that for tax years beginning after December 31, 2023, a small business taxpayer using an alternative method of accounting for inventories checks the applicable box on lines 9a(iv) through 9a(vi).

What do the instructions say about section 263A for small businesses?

They say a small business taxpayer is not required to capitalize costs under section 263A, and refer to section 263A(i).

What goes with a first LIFO election?

The instructions say to attach Form 970, Application To Use LIFO Inventory Method, or a statement with the information required by Form 970, and check the LIFO box on line 9c.

Can an inventory method be changed later?

The instructions say a method, once established, cannot be changed in a later year without requesting a change in accounting method, and point to the Instructions for Form 3115.