When you think about starting a business, you think about how to buy the big items to get your business up and running. For me, it was the computer and accounting software. However, as you move along, you find that it is the smaller purchases that take up most of your time when going to the store. I hadn’t considered the cost of cleaning supplies and tea when I got started, but once I had run out of ink in a late night tax return preparing session, I realized how essential these items were.
However, the good news is that you can deduct the cost of these items on your tax return. These would go on line 22 of your Schedule C, entitled Supplies. These would be supplies not used in the production of your product, which would be considered cost of goods sold and therefore be included in Part III of the form in the Cost of Goods Sold section. Let’s take a look at what is included on line 22 of the Schedule C.
Line 22 is basically the cost of materials and supplies that you purchased and consumed during the year. These would be things like office supplies, which many people (like myself) would use to create the work product of a tax return. Include on Schedule C Line 22 things that are incidental to the creation of your work product, but a necessary part of doing business.
Specifically, this would include the following types of items:
- Pens, paper, notebooks, and folders, along with folder labels
- Toner for your printers, fax machines and copier.
- Appointment books and calendars, as well as receipt and mileage notebooks
- CDs and DVDs that you use to store data (sorry, that Justin Timberlake CD is not deductible).
- Those bags that you use to carry your computer.
The big thing to keep in mind is that you report the costs on your tax forms. A lot of questions on the forums have to do with whether to record office supplies on line 18 as office expense, or on line 22 as office supplies. That really misses the point. You want to do the best job you can of classifying these transactions on the right line, but make sure you get them recorded. You will not get in trouble classifying something on line 18 when it should have gone on line 22. Just make sure you can prove that you actually had these costs, which means holding on to the receipts in case you need to show an auditor.
If you have any questions on deducting the cost of the supplies you use in your business, check with a good accountant who can walk you through all your options. It is better to understand all your options rather than making a rash decision about how to handle something. If you have a particular question, leave it in the comments, and I will get you an answer. If you don’t want to leave a comment, shoot me an email at email@example.com.
Chris Peden, CPA, CMA, CFM has over 15 years in the corporate world helping companies meet their regulatory compliance requirements. He also assists small business owners with organizing and making sense of their finance information. You can reach him at firstname.lastname@example.org, or check out his blog at www.theaccountingscribe.com . In accordance with Circular 230 Treasury Department Regulations, we are required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code. If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.