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Form 1125-A                                             Cost of Goods Sold
(Rev. November 2024)                                                                                                             OMB No. 1545-0123
Department of the Treasury                     Attach to Form 1120, 1120-C, 1120-F, 1120S, or 1065. 
Internal Revenue Service                   Go to www.irs.gov/Form1125A for the latest information.  
Name                                                                                                                Employer identification number

1    Inventory at beginning of year   .  .    . . . .   . .      . . . .    . . .      . .    .   . . . .       . . .          1
2    Purchases  .           . . . . .  . .    . . . .   . .      . . . .    . . .      . .    .   . . . .       . . .          2
3    Cost of labor  .         . . . .  . .    . . . .   . .      . . . .    . . .      . .    .   . . . .       . . .          3
4    Additional section 263A costs (attach schedule)  . . .      . . . .    . . .      . .    .   . . . .       . . .          4
5    Other costs (attach schedule)     . .    . . . .   . .      . . . .    . . .      . .    .   . . . .       . . .          5
6    Total. Add lines 1 through 5 .    . .    . . . .   . .      . . . .    . . .      . .    .   . . . .       . . .          6
7    Inventory at end of year  .    .  . .    . . . .   . .      . . . .    . . .      . .    .   . . . .       . . .          7
8    Cost of goods sold.        Subtract line 7 from line 6. Enter here and on Form 1120, page 1, line 2, or the appropriate 
     line of your tax return. See instructions  . . .   . .      . . . .    . . .      . .    .   . . . .       . . .          8
9a   Check all methods used for valuing closing inventory. See instructions.
     (i)   Cost
     (ii)  Lower of cost or market
     (iii) Other (specify method used and attach explanation)
     For certain small business taxpayers, alternative methods of accounting for inventories:
     (iv)  Non-incidental materials and supplies method
     (v)   AFS method
     (vi)  Non-AFS method
b    Check if there was a writedown of subnormal goods    .      . . . .    . . .      . .    .   . . . .       . . .        . .   . .   .
c    Check if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970)     . .        . .   . .   .
d    (i)   If the LIFO inventory method was used for this tax year, enter amount of closing inventory figured under LIFO     9d(i)
     (ii)  If the LIFO inventory method was used for this tax year, enter amount of the closing LIFO Reserve  . . . .        9d(ii)
e    If property is produced or acquired for resale, do the rules of section 263A apply to the entity? See instructions  .   .       Yes    No
f    Was there any change in determining quantities, cost, or valuations between opening and closing inventory? If “Yes,” 
     attach explanation         . . .  . .    . . . .   . .      . . . .    . . .      . .    .   . . . .       . . .        .       Yes    No
Section references are to the Internal            If inventories are required, you generally        Uniform capitalization rules. The uniform 
Revenue Code unless otherwise noted.              must use an accrual method of accounting          capitalization rules of section 263A 
                                                  for sales and purchases of inventory items.       generally require you to capitalize, or 
What’s New                                                                                          include in inventory, certain costs incurred 
                                                  Exception for small business taxpayers. 
Small business taxpayers. For tax years           A small business taxpayer can account for         in connection with the following.
beginning after December 31, 2023, if filing      inventory by treating the inventory as            • The production of real property and 
Form 1125-A for a small business taxpayer         non-incidental materials and supplies (line       tangible personal property held in inventory 
that uses an alternative method of                9a(iv)), or conforming to its treatment of        or held for sale in the ordinary course of 
accounting for inventories, check the             inventory in an applicable financial              business.
applicable box on line 9a(iv) through 9a(vi).     statement (as defined in section 451(b)(3))       • Real property or personal property 
See the instructions for line 9.                  (line 9a(v)). If it does not have an applicable   (tangible and intangible) acquired for resale.
                                                  financial statement, a small business 
General Instructions                              taxpayer can use the method of accounting         • The production of real property and 
Purpose of Form                                   used in its books and records prepared            tangible personal property for use in its 
Use Form 1125-A to figure and deduct cost         according to its accounting procedures            trade or business or in an activity engaged 
of goods sold for certain entities.               (line 9a(vi)).                                    in for profit.
                                                  See the discussion on small business                A small business taxpayer is not required 
Who Must File                                     taxpayers in the instructions for your tax        to capitalize costs under section 263A. See 
Filers of Form 1120, 1120-C, 1120-F,              return.  Also see sections 448(c) and 471(c).     section 263A(i). 
1120S, or 1065 must complete and attach           For additional guidance on methods of               See the discussion on section 263A 
Form 1125-A if the applicable entity reports      accounting, see Pub. 538, Accounting              uniform capitalization rules in the 
a deduction for cost of goods sold.               Periods and Methods. For guidance on              instructions for your tax return before 
Inventories                                       changing methods of accounting, see Form          completing Form 1125-A. Also see 
                                                  3115, Application for Change in Accounting        Regulations sections 1.263A-1 through 
Generally, inventories are required at the        Method, and the Instructions for Form             1.263A-3. See Regulations section 
beginning and end of each tax year if the         3115.                                             1.263A-4 for rules for property produced in 
production, purchase, or sale of                                                                    a farming business and Pub. 225, Farmer’s 
merchandise is an income-producing                                                                  Tax Guide.
factor. See Regulations section 1.471-1(a). 

For Paperwork Reduction Act Notice, see instructions.                         Cat. No. 55988R                              Form 1125-A (Rev. 11-2024)

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Form 1125-A (Rev. 11-2024) Page 2
Specific Instructions Per-unit retain allocations. A cooperative Inventories can be valued at:
is allowed to deduct from its taxable • Cost,
Line 1. Inventory at Beginning of income amounts paid during the payment • Cost or market value (whichever is lower),
Year period for the tax year as per-unit retain or
If you are changing your method of allocations to the extent paid in money,
accounting for the current tax year, you qualified per-unit retain certificates, or • Any other method approved by the IRS
must refigure last year’s closing inventory other property with respect to marketing that conforms to the requirements of the
using the new method of accounting. Enter occurring during the tax year. A per-unit applicable regulations cited below.
the result on line 1. If there is a difference retain allocation is any allocation from a Under lower of cost or market, the term
between last year’s closing inventory and cooperative to a patron for products “market” (for normal goods) means the
the refigured amount, attach an marketed for the patron without reference current bid price prevailing on the inventory
explanation and take it into account when to the cooperative net earnings. A qualified valuation date for the particular
figuring any section 481(a) adjustment. per-unit retain certificate is any per-unit merchandise in the volume usually
retain certificate that the distributee has purchased by the filer. For a manufacturer,
Line 2. Purchases agreed to take into account at its stated market applies to the basic elements of
Reduce purchases by items withdrawn for dollar amount. cost—raw materials, labor, and burden. If
personal use. For a partnership, the cost of Nonqualified per-unit retain certificates section 263A applies, the basic elements of
these items should be shown on Schedule redeemed this year. Include the amount cost must reflect the current bid price of all
K and Schedule K-1 as distributions to paid in money or other property (except direct costs and all indirect costs properly
partners. amounts already included as per-unit retain allocable to goods on hand at the inventory
certificates) to patrons to redeem date.
Line 4. Additional Section 263A nonqualified per-unit retain certificates. No Inventory may be valued below cost
Costs deduction is allowed at the time of when the merchandise is unsalable at
If you elected a simplified method of issuance for a nonqualified per-unit retain normal prices or unusable in the normal
accounting, enter on line 4 the balance of certificate. However, the cooperative may way because the goods are subnormal due
section 263A costs paid or incurred during take a deduction in the year the certificate to damage, imperfections, shopwear,
the tax year not includible on lines 2, 3, and is redeemed, subject to the stated dollar change of style, odd or broken lots, or
5. amount of the certificate. See section 1383. other similar causes, including second-
If you elected the simplified production Also see the instructions for Form 1120-C, hand goods taken in exchange. The goods
method or the modified simplified line 30h, for a special rule for figuring the may be valued at the bona fide selling
production method, additional section cooperative’s tax in the year of redemption price, minus the direct cost of disposition
263A costs are generally those costs, other of a nonqualified per-unit retain certificate. (but not less than scrap value). Bona fide
selling price means actual offering of
than interest, that are not included in your Line 7. Inventory at End of Year goods during a period ending not later than
section 471 costs but that are required to See Regulations sections 1.263A-1 through 30 days after inventory date.
be capitalized under section 263A. For 1.263A-3 for details on figuring the amount The methods on line 9a are methods of
details, see Regulations section of additional section 263A costs to be accounting. Any method, once established,
1.263A-2(b). included in ending inventory. cannot be changed in a later year without
If you elected the simplified resale
method, additional section 263A costs are Line 8. Cost of Goods Sold requesting a change in accounting method.
generally those costs incurred with respect Enter the amount from line 8 on your tax See the Instructions for Form 3115 for
to the following categories. return as follows. Filers of Form 1120, more information on requesting accounting
• Off-site storage or warehousing. 1120-C, 1120S, and 1065, enter cost of method changes.
• Purchasing. goods sold on page 1, line 2. Filers of Form Lines 9c and 9d. LIFO method. If this is
1120-F, enter cost of goods sold on the first year the last-in, first-out (LIFO)
• Handling, such as processing, Section II, line 2. inventory method was either adopted or
assembling, repackaging, and transporting. extended to inventory goods not previously
• General and administrative costs (mixed Line 9. Inventory Valuation valued under the LIFO method provided in
service costs). Methods section 472, attach Form 970, Application
Line 5. Other Costs Complete line 9 as follows. To Use LIFO Inventory Method, or a
statement with the information required by
Enter on line 5 any costs paid or incurred Line 9a. Inventory methods. Check all Form 970. Check the LIFO box on line 9c.
during the tax year not entered on lines 2 applicable boxes on lines 9a(i) through On line 9d(i), enter the amount of total
through 4. Attach a statement listing details 9a(iii) to indicate how the value of an closing inventories figured under section
of the costs. inventory item is figured. 472.
For certain small business taxpayers that If you changed or extended your
Special Rules for Cooperatives have adopted or changed to an alternative inventory method to LIFO and had to write
Cooperatives are allowed to deduct certain accounting method that is an exception to up the opening inventory to cost in the year
per-unit retain allocations. Include these the general inventory requirements of election, report the effect of the write-up
costs on line 5. Attach a statement listing described above, check a box on lines as other income, on your applicable return,
details of per-unit retain allocations paid in: 9a(iv) through 9a(vi) in lieu of checking an proportionately over a 3-year period that
• Qualified per-unit retain certificates, applicable box on lines 9a(i) through 9a(iii). begins with the year of the LIFO election.
• Money or other property (except See Regulations sections 1.471-1(b)(3) On line 9d(ii), enter the closing LIFO
nonqualified per-unit certificates), and through (6) and your accounting Reserve. The closing LIFO Reserve is
procedures.
• Nonqualified per-unit retain certificates figured by subtracting the LIFO value of the
redeemed this year. inventory subject to a LIFO method that is
on hand at the end of the tax year from the
first-in, first-out (FIFO) value of that
inventory. If the closing LIFO Reserve
amount is negative, place the amount on
line 9d(ii) in parentheses.

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Form 1125-A (Rev. 11-2024) Page 3
Note: Entities using the LIFO method that States. You are required to give us the The time needed to complete and file
make an S corporation election or transfer information. We need it to ensure that you this form will vary depending on individual
LIFO inventory to an S corporation in a are complying with these laws and to allow circumstances. The estimated burden for
nonrecognition transaction may be subject us to figure and collect the right amount of business taxpayers filing this form is
to an additional tax attributable to the LIFO tax. approved under OMB control number
recapture amount. See the instructions for You are not required to provide the 1545-0123 and is included in the estimates
Form 1120, Schedule J, line 11, or the information requested on a form that is shown in the instructions for their business
applicable line on your tax return. subject to the Paperwork Reduction Act income tax return.
Line 9e. If property is produced or unless the form displays a valid OMB If you have comments concerning the
acquired for resale and the rules of section control number. Books or records relating accuracy of these time estimates or
263A apply to the corporation, cooperative, to a form or its instructions must be suggestions for making this form simpler,
partnership, or other applicable entity, retained as long as their contents may we would be happy to hear from you. See
check the “Yes” box on line 9e. become material in the administration of the instructions for the tax return with
any Internal Revenue law. Generally, tax which this form is filed.
Paperwork Reduction Act Notice. We returns and return information are
ask for the information on this form to carry confidential, as required by section 6103.
out the Internal Revenue laws of the United

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