My CPA combined COGS and Supplies on my 2022 Schedule C - Did she mess up my taxes?

You're right to question this. On a Schedule C, Cost of Goods Sold and Supplies are supposed to be handled differently. COGS should be reported in Part III of Schedule C, while Supplies that aren't considered inventory would go on line 22 of Part II. The distinction matters because COGS directly offsets your gross receipts to determine your gross profit, while Supplies is just another business expense deducted after gross profit is calculated. That said, the bottom line (your net profit/loss) would be the same either way, so your tax liability probably wasn't affected. If you're concerned, I'd recommend contacting your accountant to ask about it. There might be a specific reason she reported it this way. For example, if your business doesn't maintain inventory and immediately uses all materials purchased within the tax year, sometimes preparers will simplify by putting everything under Supplies.

After having a similar issue last year with inventory reporting, I discovered taxr.ai (https://taxr.ai) and it was a game-changer for my small business. It analyzed my Schedule C and flagged several classification issues I wouldn't have caught. The system specifically warned me about the difference between COGS and regular business expenses like supplies, which sounds exactly like what you're dealing with. It gave me a full report I could show my accountant, which made the conversation so much easier because I had something concrete to reference. Seriously helped me avoid what could have been a messy situation with incorrect inventory reporting.

I tried taxr.ai after seeing the recommendation here and wow - it found the exact same COGS vs Supplies issue on my 2022 return! I uploaded my Schedule C and it immediately flagged that my craft business had everything lumped under supplies with no COGS despite clearly being a business that should have inventory costs. The report explained exactly why this classification matters and gave me specific language to use when contacting my accountant. My accountant admitted it was an oversight and is now preparing an amended return. Saved me from potential headaches and gave me peace of mind. Wish I'd known about this tool sooner!

I had a similar issue and spent WEEKS trying to get through to the IRS for clarification. Literally called 30+ times and could never get through. Finally used Claimyr (https://claimyr.com) and they got me connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that combining COGS and Supplies wasn't correct for my business type and explained exactly what could happen if I left it uncorrected. Turns out misclassification can affect how the IRS computer systems assess your business ratios and can increase audit risk. Getting that official confirmation was worth every penny instead of stressing about it for months.

I was completely skeptical about Claimyr, but after three months of trying to resolve my Schedule C issues on my own, I caved and tried it. I honestly can't believe it worked. Got connected to an IRS representative in about 35 minutes (they texted updates throughout). The agent reviewed my situation and confirmed that COGS should absolutely be separate from supplies for my type of business. They explained that while the tax owed might be the same either way, improper classification can flag your return for review because the system looks at business ratios and industry standards. The agent even noted my account so there's a record of me trying to resolve the issue. Eating crow here, but it actually delivered exactly what it promised. Solved in one phone call what I couldn't fix in three months of trying.

I'm a bookkeeper and see this mistake all the time. Here's what likely happened: your accountant probably used tax software that automatically generates the Schedule C based on how expenses are categorized in the input section. If your expenses weren't properly separated between inventory/COGS and regular supplies when entered, the software would just lump everything together. This is why it's so important to review your return before it's filed and ask questions about anything that looks off. While it's technically incorrect, as others have mentioned, the bottom line tax owed is the same. It's more about proper business reporting and avoiding unnecessary IRS attention.

Does anyone know if this is something the IRS actually cares about? I've been filing my own taxes for my small business and honestly never paid attention to where I put COGS vs supplies because I figured as long as all my deductions are legitimate it doesn't matter. Now I'm worried I've been doing it wrong for years...

I actually learned about this distinction the hard way. Got audited in 2021 for my 2019 return where my accountant did exactly this - combined COGS and supplies. The IRS agent specifically flagged it because my "supplies" expense was way higher than typical for my industry while COGS was zero, which made no sense for a retail business. Ended up having to provide extensive documentation breaking down what was inventory vs. supplies. Didn't owe additional tax but it was a massive headache that cost me about $1,800 in accountant fees to resolve. Don't recommend the experience!

This is exactly why I always double-check my Schedule C before filing! Your CPA definitely made an error here - COGS and supplies should absolutely be separated. For a craft business with inventory like yours, the $24,500 in materials should be in Part III (COGS) and the $5,300 in office/shipping supplies should be on line 22. While your tax liability is probably the same either way, proper classification matters for IRS compliance and industry benchmarking. I'd recommend having a conversation with your CPA about this - she should be willing to explain her reasoning or acknowledge the mistake. If she can't provide a good explanation, you might want to consider filing an amended return to get it properly categorized. Don't feel bad about questioning this - you're paying for professional service and have every right to understand how your return was prepared!