what type of companies are excluded from a cogs deduction 
many service companies do not have any cost of goods sold at all cogs is not addressed in any detail in generally accepted accounting principles gaap but cogs is defined as only the cost of inventory items sold during a given period not only do service companies have no goods to sell but purely service companies also do not have inventories if cogs is not listed on a company s income statement no deduction can be applied for those costs 1examples of pure service companies include accounting firms law offices real estate appraisers business consultants and professional dancers among others even though all of these industries have business expenses and normally spend money to provide their services they do not list cogs instead they have what is called cost of services which does not count towards a cogs deduction cost of revenue vs cogscosts of revenue exist for ongoing contract services that can include raw materials direct labor shipping costs and commissions paid to sales employees these items cannot be claimed as cogs without a physically produced product to sell however the irs website even lists some examples of personal service businesses that do not calculate cogs on their income statements these include doctors lawyers carpenters and painters 4many service based companies have some products to sell for example airlines and hotels are primarily providers of services such as transport and lodging respectively yet they also sell gifts food beverages and other items these items are definitely considered goods and these companies certainly have inventories of such goods both of these industries can list cogs on their income statements and claim them for tax purposes operating expenses vs cogsboth operating expenses and cost of goods sold cogs are expenditures that companies incur with running their business however the expenses are segregated on the income statement unlike cogs operating expenses opex are expenditures that are not directly tied to the production of goods or services 5typically sg a selling general and administrative expenses are included under operating expenses as a separate line item sg a expenses are expenditures such as overhead costs that are not directly tied to a product examples of operating expenses include the following 