Can You Deduct Products That You Buy to Sell for a Home-Based Business?

The cost of office supplies and office equipment is a standard business deduction. You buy the items, you write off the cost. Inventory you buy for a home-based business is deductible, but it's more complicated to claim the write-off. You can't simply figure out how much you spent on inventory without considering how much you still have on hand.

Whether you're a home business or a department store, you count purchasing costs as part of the cost of goods sold. This figure also includes any other purchasing expenses, for example the cost of having the supplier ship you your inventory. You also factor in money you spend to get the product to the customers, such as shipping costs, containers and the cost of paying employees to package and mail products.

To start figuring your write-off, take the value of your inventory at the start of the year. Usually this is the same as last year's ending inventory, but if your business is new, the figure may be $0. Add to that the value of all the inventory you bought during the year, and other related costs such as labor and shipping charges. Then subtract the value of your end-of-year inventory. This gives you the cost-of-goods-sold deduction.

Suppose you start out the year with $5,000 in inventory, and purchase $3,000 more. If you have $2,000 worth of inventory at year's end, the cost of the goods you sold was $6,000. You report that as an expense on Schedule C, for self-employment, and deduct it from your sales-business income. You may have to tinker with the figures to keep your deduction correct. If you took an item from inventory for personal use, for instance, you exclude the item cost from the deduction.

If you store inventory at home, you can count the storage space as another tax write-off. Suppose you use 20 percent of your apartment to store inventory. In that case, you could deduct 20 percent of utilities and rent. Normally you have to use space exclusively for business to take the deduction, but the IRS makes an exception for inventory. If you use the space for other activities when your inventory's gone, you can still take the home-business write-off.