Small Business Tax Deduction Cheat Sheet
Schedule C is the IRS form sole-proprietor sellers use to report business income and expenses. The Cost of Goods Sold (Part III) section is where most makers lose money — COGS is beginning inventory + purchases − ending inventory, not "what you spent on supplies."
A 12-page reference guide covering every Schedule C category that matters to makers, bakers, and creators. Walks each line of the form with concrete examples of what belongs there, what doesn't, and the common mistakes that trip up first-time filers — including the COGS section that most makers fill out wrong. Use it during the year as you categorize expenses, and again before handing things off to your CPA.
- Every Schedule C line broken down with maker-specific examples
- The full Cost of Goods Sold (Part III) walkthrough — beginning inventory through ending inventory
- Home office, vehicle, and equipment depreciation rules in plain language
- Travel, meals, contract labor, and education — the categories the IRS scrutinizes most
- Common mistakes section: what does NOT belong on Schedule C
- Records-to-keep checklist with retention periods
Educational reference only — not tax, accounting, or legal advice. Tax rules change and circumstances vary; review with a CPA or enrolled agent before filing.
How COGS actually works on Schedule C
Cost of Goods Sold is calculated on Part III of Schedule C using a specific formula: beginning-of-year inventory + purchases during the year + materials and labor + other costs − end-of-year inventory = COGS. The mistake most makers make is reporting "what I spent on materials" as COGS — that is purchases, not COGS. Without a defensible ending inventory value, the number is wrong.
The IRS expects an inventory count on December 31 (or the last day of your fiscal year) at cost — not retail. Raw materials at last-purchase price, finished goods at production cost, work-in-progress at the materials-and-labor-to-date number. Keep the count documented; it is the most-audited line on a maker's return.
What does NOT belong on Schedule C
Personal-use items, no matter how plausible: groceries you also bake with, the printer ink the family also uses, the car payment for the vehicle you use 30% for business. The IRS allows the business-use percentage as a deduction (vehicle, home office, utilities) but only with a contemporaneous mileage log or square-footage measurement.
Cost of goods you bought but did not sell — that is ending inventory, not an expense. And anything paid by credit card and not yet reimbursed by the business is still deductible in the year it was charged, not when paid; this catches many cash-basis filers.
Or skip the spreadsheet entirely
Most of what makes tax season miserable is reconstructing data you didn't track during the year. Ardent Seller tracks COGS, fees, inventory values, and expense categories as you go — so on April 15 you're exporting, not panicking.
Schedule C tax categories
Tag every expense and income transaction to a Schedule C line, with system defaults and per-account overrides.
Inventory valuation
Defensible beginning and ending inventory values with full audit trail — the COGS numbers your CPA needs.
Profit & Loss and Schedule C reports
Pull a year-end summary mapped to Schedule C lines in seconds, ready to hand off.
Frequently asked questions
What can a maker deduct on Schedule C?
Materials sold (via COGS), supplies consumed (small tools, glue, packaging tape), home office (square footage × utilities + depreciation), vehicle (business mileage), business meals at 50%, contract labor (1099-NEC required at $600+), platform fees (Etsy, Shopify, Square), shipping costs, and equipment depreciation. The full Schedule C lineup is in the cheat sheet.
How do I calculate COGS for a handmade business?
COGS = beginning inventory + purchases + materials and labor used in production − ending inventory. Count inventory at cost (raw materials at purchase price, finished goods at production cost) on the last day of your fiscal year. Without a defensible ending inventory number, COGS is incorrect and so is your reported profit.
Do I need to track inventory for taxes if I am a small maker?
The IRS provides a small-business exception (Sec. 471(c)) for businesses under $29M in revenue allowing materials-and-supplies treatment instead of full inventory accounting. But "materials and supplies" still requires tracking what was used in goods sold versus on hand. Most makers are better off doing a simple year-end inventory count rather than relying on the exception.
Can I deduct mileage to and from craft shows?
Yes — business mileage is deductible at the IRS standard rate (currently 67¢/mile for 2024, 70¢/mile for 2025). Track date, destination, business purpose, and miles in a contemporaneous log (a phone app or notebook). Drives between home and a craft show are business mileage; drives between home and a regular workplace are commuting and not deductible.
Related resources
Quarterly Estimated Tax Worksheet
A working Excel worksheet for self-employed makers — log income, set filing status, and the four quarterly estimated-tax payments calculate themselves. SE tax (15.3%) plus federal income tax math built in, with a safe-harbor escape hatch on its own tab.
Schedule C Tax Expense Tracker
A working Excel expense tracker organized by IRS Schedule C category. Drop-down picker on every row, a Monthly Summary that builds itself, a year-end Schedule C view, and a mileage log with the deduction calculated for you.
Year-End Inventory Reset Checklist
A two-page printable for the December/January annual ritual — full stocktake, write-off identification, dead-stock liquidation plan, and the Schedule C Part III math that turns this year’s ending inventory into next year’s opening balance.
Craft Seller Startup Checklist
36 things to set up before — and after — your first sale. Inventory, pricing, and the legal essentials in one place.
Spreadsheet vs Inventory Software: The Decision Guide
When a spreadsheet is enough, when it stops working, and how to tell the difference before it costs you.
From the blog
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