Business & farm

I'm assuming from your statement that the business is a Sch C business.

No, you won't have to include the inventory into income.

BUT, you can't deduct the cost of the inventory either...because it is being converted to personal use.

Since your ending inventory will be zero, you will have to reduce your COS/purchases by the amount of inventory you convert to personal use.

using the standard formula for computing cost of goods sold

Beginning Inventory                     $x,xxx

Purchases                                    $  xxx

Goods Available                          $xx,xxx

Less Ending Inventory                ($x,xxx)

Cost of Goods sold                      $  xxx

If ending inventory becomes zero, that increases cost of goods sold.  So for items taken out of ending inventory for personal use, you have to make an adjustment to:

1.)  decrease purchases by amount converted to personal

OR

2.)  decrease cost of goods sold by amount of inventory converted to personal