You may ignore
inventory completely if your gross receipts were under $1 million. In this
case, simply report the purchase of inventory as Materials, Supplies, or Merchandise for Resale.
See IRS Pub 334 Accounting
for Inventory under "Qualifying Taxpayer."
For items that were drop-shipped, your expenses would be limited to the cost of the drop-shipper's services. If you purchased resale items and shipped them yourself, you would report the cost of the merchandise and any shipping/packaging costs.
As a cash-basis taxpayer, you may deduct any expenses that were paid before the end of the year. This includes payments via credit card, as this represents an obligation to pay.
To assist you in classifying your expenses, use the Easy Guide under Business Expenses. These pages have additional information and blue links ("Learn More") that may be helpful.
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