Business & farm

Deduct the cost of inventory/non-incidental materials and supplies as materials and supplies in the year purchased regardless of when they were sold. This is the intent of the the Tax Cuts and Jobs Act (TCJA) that began in 2018. Yes, you can use business expenses not yet reported.  It is a suggestion to use 'materials and supplies', the choice is yours. Cost of goods is not required for you now and in the future unless the law is changed.

See additional details here: According to TCJA, businesses with gross receipts below $26 million (for 2024) are considered eligible to use the cash method of accounting for their inventory.  

• TCJA Comparison for Businesses: The law expands the number of small business taxpayers eligible to use the cash method of accounting and exempts these small businesses from certain accounting rules for inventories, cost capitalization and long-term contracts. As a result, more small business taxpayers can change to cash method accounting starting after Dec. 31, 2017. 
• Revenue Procedure 2018-40 provides further details.
  • (1) Description of change. This change applies to a small business taxpayer, as defined in section 15.18(5)(a) of this revenue procedure, that wants to change its § 471 method of accounting for inventory items to one of the following:
    • (a) treating inventory as non-incidental materials and supplies under § 1.162- 3; OR or
    • (b) conforming to the taxpayer’s method of accounting reflected in its applicable financial statements, as defined in § 451(b)(3), with respect to the taxable year, or if the taxpayer does not have an applicable financial statement for the taxable year, the books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures.

The choice is yours. For this reason you can list your inventory as materials and supplies each year without carrying an ending inventory amount as long as you meet the gross receipts qualifier.  Under the revenue procedure, the gross receipts threshold in IRC Section 448(c) increases from $26 million for taxable years beginning in 2021 to $27 million for taxable years beginning in 2022.

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