topic Categorizing Refunds on Schedule C in Deductions & credits

Categorizing Refunds on Schedule C

BTCrafting — Mon, 09 Mar 2026 10:56:30 GMT

Looking at the details for Schedule C, Line 2/Returns & Allowances, the IRS instruction form states, "A sales return is a cash or credit refund
you gave to customers who returned defective, damaged, or unwanted products."

I started selling products online this year through seller sites (not handmade) and gave refunds to customers for defective/broken products but did not require the sender to return it to me.

How do I correctly categorize a refund charge on my schedule C? Would it be "Other Expenses"/Part V? Thank you in advance!

Re: Categorizing Refunds on Schedule C

MinhT1 — Tue, 12 Apr 2022 21:44:07 GMT

The refunds to customers are reported as Returns and Allowances on line 2 of Schedule C which ia a deduction from Gross income.

Re: Categorizing Refunds on Schedule C

BTCrafting — Tue, 12 Apr 2022 21:50:30 GMT

Thanks, I'm aware of that but just wanted to make sure that also applies to products that were NOT returned to me.

I bolded the part of the IRS instructions in my post that I needed clarification about.

Re: Categorizing Refunds on Schedule C

Carl — Tue, 12 Apr 2022 21:54:34 GMT

I'm aware of that but just wanted to make sure that also applies to products that were NOT returned to me.

Those products are still included in your Cost of Goods Sold (COGS) section. So even if it was returned, more than likely a non-functioning product would have been thrown out anyway. Doesn't change the fact that you had to pay for that item.

Re: Categorizing Refunds on Schedule C

BTCrafting — Tue, 12 Apr 2022 22:00:29 GMT

Understood and thank you all for the responses! I've been doing simple taxes for years so this has been a learning experience (I appreciate them!).