Boutique clothing inventory

[christina-f2]

My boutique makes less than 1 million annually. Can I expense my clothing inventory (the wholesale price) under non incidentals? And  would that be just the inventory I purchased in 2025? 

[MindyB]

Yes, you can expense under non-incidentals, but no, it is not the purchased inventory in 2025, it is the sold inventory in 2025. 

Because your boutique generates less than $1 million annually, you qualify as a small business taxpayer, which allows you to bypass the inventory accounting rules required for larger corporations. Under the current IRS guidelines (Section 471(c)) you are permitted to treat your clothing inventory as "non-incidental materials and supplies." While this simplifies your record-keeping, it does not typically allow for a cash basis deduction where you expense everything the moment you buy it. Instead, the IRS requires that non-incidental supplies be deducted in the tax year they are consumed or used in operations. 

In a retail context, "consumed" means the moment the item is sold to a customer. This means you generally cannot expense the wholesale cost of every item purchased in 2025 unless those items were also sold in 2025. 

[christina-f2]

Thank you. Follow up question. For the items that sold that I am expensing, how would I add the cost of shipping that I was charged (for say one shirt) when the shipping amount charged was for a pack of the same item (say pack of 6 shirts was charged $18 for shipping)?

[DianeW777]

The shipping costs can be added as 'Other or Miscellaneous' expenses and labeled as shipping expense; or they can be added to the cost of your Boutique inventory as part of the cost of your products.

@christina-f2