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jgordosea, Enrolled Agent
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Experience:  I've prepared all types of taxes since 1987.
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I am a sole proprietor who manufactures items from raw ...

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I am a sole proprietor who manufactures items from raw materials. I made an item and gave it away at a trade festival as a prize for a contest the festival runs. The item I gave away is my only "cost" for participating in the festival. Can/where do I deduct this expense on my Schedule C? Do I deduct the retail value of the item or only the value of the raw materials?
Submitted: 6 years ago.
Category: Tax
Expert:  jgordosea replied 6 years ago.

Greetings,

You can only deduct the cost of the materials and not the value of the item donated.

Usually, the cost of the materials will already be accounted for in your Schedule C in the Cost of Goods section. That is, if you included (and did not separate) the cost of making that item from the material costs for all of the items you made and sold alst year those material costs will be in the purchase and will not be in the ending inventory. In that case, no additional entry is needed to account for the cost of the materials used for the donated property.

Best regards.

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3038
Experience: I've prepared all types of taxes since 1987.
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