@Carl wrote:
There should also be no issues in that respect when the business closes.
A possible scenario where it could be an issue.
You purchase $40K of inventory in 2020 and only sell $5K of that inventory. Then for whatever reason you go bust in 2021 with $35K of inventory remaining that you expensed. On paper, this could result in a $35K "loss" for inventory that you kept for personal use.
This is not an issue since the inventory is not expensed it until it is sold.
If a taxpayer is treating this in any other manner (e.g., as you described. where the inventory is expensed all at once - prior to being sold), they are doing it wrong. That would be what the IRS would term improper matching of income with expenses.
