When all else fails read the Sch C instructions : https://www.irs.gov/pub/irs-pdf/i1040sc.pdf
Inventory: page C-14
Exception for small business taxpayers. If you are a small business taxpayer, you can choose not to keep an inventory, but you must still use a method of accounting for inventory that clearly reflects income. If you choose not to keep an inventory, you won't be treated as failing to clearly reflect income if your
method of accounting for inventory treats inventory as non-incidental material or supplies, or conforms to your financial accounting treatment of inventories. If, however, you choose to keep an inventory, you generally must use an accrual method of accounting and value the inventory each year to determine
your cost of goods sold in Part III of Schedule C.
Small business taxpayer.
You qualify as a small business taxpayer if you (a) have average annual gross receipts of
$25 million or less for the 3 prior tax years and (b) are not a tax shelter (as defined in section 448(d)(3)).
If your business has not been in existence for all of the 3 tax-year period
used in figuring average gross receipts, base your average on the period it has
existed, and if your business has a predecessor entity, include the gross receipts
of the predecessor entity from the 3 tax-year period when figuring average
gross receipts. If your business (or predecessor entity) had short taxable years
for any of the 3 tax-year period, annualize your business' gross receipts for the
short tax years that are part of the 3 tax-year period.
See Pub. 538 for more information.
Supplies : page C-8
Line 22
In most cases, you can deduct the cost of materials and supplies only to the extent you actually consumed and used them in your business during the tax year (unless you deducted them in a prior tax year).
However, if you had incidental materials and supplies on hand for which you kept no inventories or records of use, you can deduct the cost of those you actually purchased during the tax year, provided that method clearly reflects income. You also can deduct the cost of books, professional instruments, equipment, etc., if you normally use them within a year. However, if their usefulness extends substantially beyond a year, you must generally recover their costs through depreciation.
