When did I officially start my home-based (sole proprietor) business if I began purchasing supplies in Sept., 2020 but sold to my first customer in 2021?

[Laura-Michele]

This confectioner business will be on a cash basis. I am working from home. In Sept., 2020 I purchased supplies where I keep them in a dedicated space in my home.  I made many chocolates to practice and give away for sampling in 2020.  My first sale will be in April, 2021.  #1. When did I officially begin my business? #2. In which tax year should I claim the supplies? (I will be operating on a cash basis. No major purchases were made in 2020.) #3. In which tax year and in which month should I deduct expenses for my home-"office"? Thank you!

[AnnetteB6 · Accepted solution]

Consider when you would have first accepted a paying customer as a business owner.  At that point, you were 'open for business' and can claim your business expenses accordingly.  

You mentioned that you made many chocolates during 2020 to give away for sampling.  If you gave those away along with information about how to order more, then you were open for business at that point in 2020.  You can then claim your supply costs as a business expense for your 2020 tax return.

The home office deduction is less clear.  The exception to the exclusive use rule with regard to a home office is when the space is used to store inventory or product samples used in your business.  Storing supplies in a dedicated space in your home may not meet the definition of a home office in the eyes of the IRS.  

With that in mind, take a look at the following TurboTax article for more details:  The Home Office Deduction