If you're working it through the COGS section of the program, you can only deduct the cost of goods that you "actually sold" in the tax year. It doesn't matter in what year the goods were purchased either.
Otherwise, if you're treating your inventory as supplies, then the cost of supplies can be deducted in the tax year purchased/paid for. This can (and will) cause a problem book keeping wise, if/when you remove any of those supplies for personal use, donate them to a qualified charity, or do something else with them "other" than sell them. So that's one reason I recommend that if you "really are" carrying an inventory in your business, that you just report it as such in the COGS section.
Generally, inventory is reported in COGS and consist of a product you purchase at one price, and then re-sell it at a higher price for a profit.
Generally, supplies can include materials you purchase in order to manufacture a product that you sell for more than the cost of those manufacturing supplies and labor to build it, so you make a profit.
Perhaps the below information whill provide a bit more clarity for you.
BUSSINESS ASSET
This is any equipment used by
a business used on a recurring basis in the operation of the business. For
example, if you are a hairdresser working out of your house, if you
purchased a salon chair for your customers to sit in while you do their hair,
that chair is an asset used in the day-to-day operation of your business. Asset
costs are not deductible. You list assets in the Assets/Deprecation section and
they cost is depreciated over time. How much time they're deprecated over is
dependent upon the type of asset it is, which you will select at the time you
enter the asset in the TT program.
BUSINESS SUPPLIES
These are things used in the
business that are usually consumed in the process of using them for their
intended purpose in your business. For example, if you are a self-employed hair
dresser, you pay for things like shampoo, hair colorings and dyes, and the
such. These things are consumed in the operation of your business. What you pay
for these items are considered to be a supply expense.
Some are unsure how to
classify low cost items such as curling irons and the such. It's okay to be
realistic. You're not going to classify something such as a $20 curling iron as
an asset that has to be depreciated over time. When that curling iron breaks or
otherwise stops functioning, you're going to throw it away. It's okay to use
common sense and declare what you paid for the curling iron as a supply
expense.
OFFICE SUPPLIES
The cost of those items used
in the management of your business. For example, stamps and envelopes used for
billing your clients. What you paid for that ledger book you use to keep track
of your clients appointments and what they owe.
MATERIALS EXPENSES
The cost of those items used by your business that are not
necessarily office supplies. These may be consumables used in the production of
the product you sell, or the service you provide. For example, if you operate a
lawn care service, things like gas for your mowers, lawn fertilizers and the such
are supply or materials expenses. You’re not selling the product itself, so
it’s not really inventory. It’s a required product which you include with the
service you provide. So it’s a material expense. Whereas if your business is
the manufacturing of bird houses that you sell upon completion, obviously, the
wood you purchase as well as the nails are classified as inventory, since they
become “a material part of” your finished product. But during your manufacturing
process you use quite a bit of sand paper to sand the wood to a smooth finish
before you paint it. The sandpaper is used in the manufacturing process, but it
does not become “a material part of” the finished product. It is in fact,
“consumed” during your manufacturing process. So the cost of the sandpaper is a
“cost of materials” expense.
