Income Taxes Office Expense Vs. Supplies for Business


The IRS considers general office supplies and office expense to be one and the same; however, there are other categories of supplies that do not fall under the general-expense category. To correctly deduct these costs, you must separate your supply expense based on the activity and tracking method you use to account for the supplies.

Office-Expense Supplies

Office-expense supplies include items you use in general-office functions. These supplies are generally not inventoried, and the time it takes to consume the supplies is not specifically tracked. Examples of these supplies include paper, pens, postage stamps, file folders and envelopes.

Regular Supplies

Regular supplies include items you track the consumption of and maintain an inventory system for, but these items must not be directly used to produce goods you sell. In addition, supplies in this category generally must be consumed within a year. Examples of regular supplies include packaging and shipping supplies, promotional books and customer gift-with-purchase items.

Cost of Goods Sold

Supplies you attribute to the direct production of goods you sell are Cost of Goods Sold supplies. These supplies are generally tracked in an inventory system, used in the manufacturing process and are consumed within the year. Examples of supplies in this category include nails, screws, bolts, thread, glue, paint and ingredients used in mixed or consumable products.

Claiming the Expense

The form you use to claim your supplies expense depends on the way your business is legally organized. If you are a sole proprietor or have a single-member limited liability company (LLC) that is not treated as a corporation, claim the expense on IRS Schedule C. If you have a regular corporation, claim the expense on Form 1120. If you have an S-corporation, claim the expense on Form 1120-S. Partnerships and LLCs with two or more members must claim the expense on Form 1065. If you have an LLC that is treated as a corporation, use the appropriate 1120 or 1120-S form to claim your expense.

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