Raw materials belongs on Part III line 38, part iii line 38, materials and supplies.
Why part iii line 38
Materials that become physically part of something you sell belong in Part III line 38, materials and supplies, which feeds cost of goods sold rather than the Part II expense lines. The timing follows the product: the cost reaches your deduction when the finished item is sold, with unused materials and unsold finished goods both sitting in ending inventory. The distinction from line 22 supplies is physical. Fabric that becomes the dress is line 38, while the sewing machine needles and thread snips that wear out running the shop are supplies.
Log it once, with the line already on it. Type an expense in plain words in ClaryBook and it is filed with a date, vendor, amount and what it was for, so the number your preparer needs for raw materials is already written down.
Start for freeWhat raw materials is confused with
- Line 22, supplies
- If the item is consumed doing the work but does not leave with the product, it is line 22 supplies, so sandpaper is supplies and the timber is materials.
- Part III line 36, part iii line 36, purchases less personal use
- Goods bought finished and resold as they are go on line 36, while anything you cut, assemble or transform goes on line 38.
- Line 13, depreciation and section 179 expense deduction
- Tools and machines that make the product last beyond a year and are recovered on line 13, so they never enter Part III.
Examples that belong on part iii line 38
- $2,600 of hardwood for a furniture maker
- $900 of silver and findings for a jeweller
- $1,400 of flour, butter and sugar for a bakery
- $340 of resin and pigment for a candle maker
- $180 of blank t-shirts for a print-on-demand shop
What does not belong here
- Entering materials on line 22 supplies, which is the most common misplacement.
- Entering them in Part V on line 27a.
- Deducting the full purchase when materials are still on the shelf at year end.
- Including the machine or the tooling, which are assets on line 13.
What to keep
Keep supplier invoices and a year-end count of unused materials and finished goods at cost. A simple bill of materials per product makes the allocation defensible and makes pricing easier too.
Other expenses on part iii line 38
| Expense | Line |
|---|---|
| a baker's ingredients | Part III line 38 |
| printing consumables for a print on demand seller | Part III line 38 |
Related lookups
- Where do job materials go on Schedule C?
- Where does inventory go on Schedule C?
- Where does capex go on Schedule C?
Sources
This page explains how Schedule C lines work. It is general information, not tax advice for your situation. If an expense is large or the answer turns on a fact about your business, confirm it with your tax preparer.
Looking for a different expense? The full Schedule C line lookup has every line from 8 to 27 with the expenses that belong on each, and Schedule C expense categories walks the whole form in order.
Log it once, with the line already on it. Type an expense in plain words in ClaryBook and it is filed with a date, vendor, amount and what it was for, so the number your preparer needs for raw materials is already written down.
Start for free