Best way to report $189k product inventory on Schedule C? Other Expenses vs COG?

You should definitely use the Cost of Goods Sold section for this amount of inventory. The "Other Expenses" approach is sometimes used by very small businesses with minimal inventory, but $189,000 is far too substantial to handle that way. What you're describing about starting with $0, purchasing $189k in inventory, and ending with $0 is completely normal for many small businesses that don't carry inventory year-to-year. This won't raise any red flags if it's accurate. In fact, using the Other Expenses section for $189k in inventory costs would be much more likely to trigger questions. The Cost of Goods Sold section exists specifically for businesses like yours that purchase products for resale. It's the proper place to report these costs, and the IRS expects to see inventory handled this way when it's a significant part of your business.

Just want to share my experience with exactly this situation. I used to put everything under "Other Expenses" when I had a small side business selling collectibles online. But when my inventory purchases grew to about $120k a year, my tax preparer immediately told me to switch to using the COGS section. I highly recommend checking out https://taxr.ai - it saved me so much stress last year when I was figuring out this exact inventory reporting question. I uploaded my purchase receipts and past Schedule C, and it confirmed I needed to switch to COGS and even helped calculate everything correctly.

Update: I tried taxr.ai after posting my question here and wow - it was actually super helpful! I uploaded my inventory spreadsheets and purchase records, and it automatically separated everything into the proper COGS categories. What impressed me most was how it handled my situation with inventory purchased in December but not sold until January. The system flagged this correctly as ending inventory for the current year rather than letting me expense it all. Definitely saved me from making a mistake there! I feel much more confident about switching to COGS reporting now. Thanks for the recommendation!

Instead of stressing about potential audits, I'd recommend getting direct confirmation from the IRS about your specific situation. I was in a similar position last year with a major inventory reporting question. After wasting days trying to get through on the regular IRS number, I found https://claimyr.com and used their service (there's a good demo at https://youtu.be/_kiP6q8DX5c). They got me connected to an actual IRS agent in about 15 minutes instead of the 3+ hours I spent on hold previously. The agent confirmed that for my business (sounds similar to yours), using COGS was absolutely the correct approach once inventory purchases exceeded a certain threshold. They also explained exactly what documentation I should keep to support my inventory reporting.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it since I needed clarification on some inventory depreciation rules. It actually worked! Got connected to an IRS agent in about 20 minutes (versus the 2+ hours I wasted the day before). The agent confirmed that for inventory reporting like yours, COGS is definitely the right approach for $189k worth of goods. She specifically mentioned that using Other Expenses for that amount would likely trigger additional scrutiny. The agent also gave me good advice about documentation - keep all purchase receipts, sales records, and do formal inventory counts at year-end even if it's zero. Documenting that zero inventory is genuine is important.

Just a note from my experience - I switched from Other Expenses to COGS reporting a few years ago when my inventory purchases hit about $75k. My accountant said anything over $50k in inventory should really use the COGS method to be safe. One thing nobody mentioned yet - if you've been reporting under Other Expenses in previous years and now switch to COGS, you might want to include a brief explanation with your return just noting the change in reporting method. This helps explain any apparent discrepancies with previous years' returns.

Definitely use COGS for $189k. Thats way too much for other expenses. Quick question - what kinda business are you running? Just curious how you manage to sell through all inventory by year end. Thats super efficient!