The IRS is aware that it costs money to make money, so it has anticipated a number of deductions that any small business might have. Here are the typical business deductions as listed on Schedule C, the Profit or Loss from Business, Self-Employment income tax form.
First they want you to focus on the “Cost of Goods Sold” -- this is what it cost you to manufacture or purchase the products you sold. Here is what they want to know:
Cost of your inventory (at beginning and end of year)
Cost of items withdrawn for personal use
Cost of labor (what you paid to others, not your own labor)
Materials and supplies
Then they want to know what you spent on expenses to run the business. On Schedule C, the 21 featured expense categories are listed alphabetically instead of being grouped by topic. Here they are:
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