Digital Artwork on Schedule C?

[taxpleasehelpme]

Hello, I purchased some digital artwork (license to use) to be used as designs on t-shirts for my clothing business.  What category would this go under on my Schedule C?

[KrisD15]

You might use "Contract Labor" however the IRS might then expect you to issue 1099's to subcontractors.

You could use "Legal and Professional Fees" which might be a better fit.

Whichever you use, use the same category year after year.  The IRS likes consistency. 

[taxpleasehelpme]

Thanks for getting back, following is the description the IRS has for Legal and Professional Services:

"Include on this line fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to operating your business.

Include fees for tax advice related to your business and for preparation of the tax forms related to your business. Also, include expenses incurred in resolving asserted tax deficiencies related to your business."

So I'm not sure if that is the right category either.

[PatriciaV]

The artwork is used to create inventory, so it could be part of Cost of Goods Sold. Most online merchants consider this to be contract services (of an artist) or supplies (graphics). In any case, where you report your business expenses is not as important as reporting the expense only once.