USA promo giveaways following year under COGS small biz exception and cash method

Dec 27, 2022
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United States
Hello brilliant accountants. I've got sort of a novel case I'm trying to work out.

My S-corporation uses the cash basis method of accounting, and qualifies for the small biz exception to IRS Form 1125-A:

Exception for certain taxpayers. A small business taxpayer (defined below), can adopt or change its accounting method to account for inventories in the same manner as material and supplies that are nonincidental, or conform to its treatment of inventories in an applicable financial statement (as defined in section 451(b)(3)), or if it does not have an applicable financial statement, the method of accounting used in its books and records prepared in accordance with its accounting procedures. See section 471(c)(3).

In 2022 I paid printing costs for books to sell at comic book conventions and give away as promotional items.

The ones I sell for income will be material and supplies under "other deductions" on 1120S Line 19, accounted as general business expenses under section 162 and the small business exception to COGS accounting. Then the entire income from sales is regular income under gross receipts and sales, accounted at the time of the sale transaction, and I don't have to mess with inventory asset accounts or 1125-A.

Should the ones used as promotional items be expensed separately as advertising on 1120S Line 16?

The thing is, I don't know in advance how many I will expense as promotional items.

For the ones I gave away in 2022, I can just adjust the amounts from the general expense account to advertising.

But what about books from that print run that I gave away in 2023 as promotional items? Because I use cash basis and skip COGS accounting under the exception, the actual expense for these items is accounted in 2022. If I adjust the expense accounts in 2022 for the giveaways in 2023, would I have to amend my 2022 return to move amounts from Line 19 to Line 16? That seems like a pain.

Maybe it's better just to treat them all as general business expenses in the year of the printing expense, keep a separate record that accounts for giveaways, and not worry about whether they show up on Line 16 or Line 19. That doesn't change the total deduction.

Thanks in advance for your wise and constructive input.
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