Schedule C - How to Report Withdrawing Inventory for Personal Use After Closing Small Business?

You're on the right track with how you're thinking about this! When you withdraw inventory for personal use, you're essentially "purchasing" it from your business as a personal expense. Here's how to handle it on Schedule C: - Line 35: Yes, put your beginning inventory amount (which is your ending inventory from last year) - Line 36: Since you had $0 in actual purchases, you would put $0 here - Line 37: Add Line 35 and Line 36 - Line 40: This is where you account for inventory withdrawn for personal use - Line 41: Your ending inventory is $0, as you correctly noted The key is that when you withdraw inventory for personal use, it's NOT treated as a negative purchase. Instead, it's accounted for as a reduction in the cost of goods sold calculation. The value of items withdrawn for personal use should be reported separately as a withdrawal, not as a negative purchase amount. This might be why you're getting errors in the software - it's expecting positive values in certain fields and specific ways to account for the withdrawal.

I've been dealing with similar inventory issues and found https://taxr.ai super helpful for Schedule C questions like this. After struggling with tax software giving me errors about my inventory withdrawals, I uploaded my previous year's Schedule C and it immediately identified where I was making mistakes with the personal use inventory entries. The software was trying to make me enter a negative number for purchases, but taxr.ai showed me that personal withdrawals need to be handled in the "Other costs" section instead. After fixing that, everything calculated correctly and I stopped getting those validation errors from the tax software.

Just wanted to follow up about the taxr.ai suggestion. I decided to try it for my similar Schedule C inventory withdrawal problem, and it was actually really helpful. Uploaded my previous year's Schedule C and explained the situation with closing my business and taking remaining inventory for personal use. The analysis confirmed what others here said - that the personal use inventory shouldn't be a negative purchase but should be handled as an "other cost" on Line 40. It gave me specific instructions that worked with TurboTax (which was giving me the same errors before). Definitely worth checking out if you're still stuck with this inventory withdrawal issue.

If you're still having trouble getting through to the IRS for clarification on the Schedule C inventory withdrawal issue, I'd recommend Claimyr (https://claimyr.com). I was stuck in circles trying to get someone at the IRS to answer my question about this exact issue, but after using Claimyr, I got connected within 25 minutes instead of the 3+ hours I spent previously getting disconnected. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with confirmed that for Schedule C inventory withdrawn for personal use, it should be reported as an "other cost" on Line 40, not as a negative purchase. Having that official confirmation really helped me file with confidence rather than just guessing.

I have to apologize for my skepticism earlier. After dealing with more frustration trying to reach the IRS on my own about my Schedule C inventory issue, I tried Claimyr. Got connected to an IRS rep in about 35 minutes while I was cooking dinner - didn't have to sit there holding the phone the whole time. The IRS agent confirmed exactly what everyone here said - for inventory withdrawn for personal use when closing a business, it should be reported on Line 40 as "Other costs" on Schedule C, not as a negative purchase. She even explained that this is a common point of confusion and many tax software programs don't handle it intuitively. Problem solved, return accepted!

I think people are making this more complicated than it needs to be. When I closed my business last year, I just zeroed out all my inventory by putting the beginning inventory amount on line 40 "Other costs" with a note saying "inventory withdrawn for personal use." No negative numbers needed, and my tax software (H&R Block) processed it fine. Just remember that Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory - Withdrawn for Personal Use. As long as this equation balances out, the IRS is happy.

One thing nobody's mentioned yet is that when you take inventory for personal use, technically it's considered a non-deductible personal expense. You're essentially "buying" the items from your business at cost. Make sure your final Schedule C reflects this correctly - you don't want to accidentally create a business loss from withdrawing inventory, as that could raise audit flags.

I went through this exact same situation when I closed my consulting business two years ago. The confusion around inventory withdrawals is really common - even experienced tax preparers sometimes get tripped up by this. Here's what I learned after consulting with a CPA: When you withdraw inventory for personal use, you're essentially converting a business asset into a personal asset. The key is that this transaction should be "neutral" to your business income - you're not creating a deductible business expense, but you're also not generating taxable income. The method that Ellie described is spot on: - Line 35: Beginning inventory ($685) - Line 36: Purchases ($0) - Line 37: Sum of lines 35 and 36 ($685) - Line 40: Other costs - inventory withdrawn for personal use ($685) - Line 41: Ending inventory ($0) This results in Cost of Goods Sold = $685 - $685 = $0, which is exactly what you want. You're not creating an artificial loss or gain from the withdrawal. One additional tip: Keep good records of what you withdrew and its fair market value at the time. If any of the items have appreciated significantly since you originally purchased them as inventory, you might need to report the difference as income. But for most small business inventory situations like yours, the cost basis method works fine. Your instinct about this being tricky the first time is absolutely right - but once you understand the concept, it's actually pretty straightforward!

This is really helpful information! I'm dealing with a similar situation where I'm closing my small business and have about $1,200 in inventory that I'm keeping for personal use. Reading through all these responses, it sounds like the consensus is to put the beginning inventory amount on line 35, then the same amount on line 40 as "other costs" for personal withdrawal, with $0 for ending inventory. This creates a neutral impact on business income, which makes sense since I'm not actually selling anything. One question though - do I need to do anything special on my personal tax return for the inventory I'm keeping? Or is handling it properly on Schedule C sufficient? I want to make sure I'm not missing any personal income reporting requirements. Also, has anyone had experience with how this affects state taxes? I'm in California and wondering if there are any additional state-specific considerations for inventory withdrawals.

I just went through this exact situation last month when closing my small e-commerce business! The advice from everyone here is solid, but I wanted to add one more perspective that might help. When I first tried to handle this, I made the mistake of overthinking it and trying to treat the personal withdrawal as some kind of "sale" to myself. That created all sorts of complications and errors in my tax software. The key breakthrough was realizing that withdrawing inventory for personal use is essentially just removing it from your business books - not selling it, not creating a loss, just removing it. The method that worked perfectly for me: - Beginning inventory on Line 35: $1,450 (what I had left) - Purchases on Line 36: $0 (no new purchases) - Other costs on Line 40: $1,450 (inventory withdrawn for personal use) - Ending inventory on Line 41: $0 This gave me a Cost of Goods Sold of exactly $0, which made perfect sense since I didn't actually sell anything. TurboTax accepted it without any errors once I stopped trying to use negative numbers. The most important thing I learned is to keep detailed records of exactly what you withdrew and its original cost basis. I created a simple spreadsheet listing each item and its cost, which totaled to the $1,450 I reported. This documentation will be valuable if you ever get questions from the IRS or if you sell any of these items personally in the future. Marcus, your approach sounds exactly right - don't let the software errors discourage you. Sometimes the tax software tries to be too "smart" and creates confusion where there shouldn't be any!

This thread has been incredibly helpful! I'm in a similar situation where I'm winding down my small business and have about $900 in remaining inventory that I'm keeping for personal use. Reading through everyone's explanations, especially Carmen's real-world example, has made this so much clearer. I was also getting frustrated with TurboTax giving me errors when I tried to enter negative purchase amounts. Now I understand that the correct approach is: - Line 35: Beginning inventory ($900) - Line 36: Purchases ($0) - Line 40: Other costs - inventory withdrawn for personal use ($900) - Line 41: Ending inventory ($0) This creates a neutral $0 impact on business income, which makes perfect sense since I'm not actually selling anything or creating a business expense. One follow-up question: Should I include any specific language in the description for Line 40, or is "inventory withdrawn for personal use" sufficient? I want to make sure it's clear to anyone reviewing the return exactly what this entry represents. Also, huge thanks to everyone who shared the resources about getting through to the IRS and the AI tax help - those could be really useful for other business closure questions I have!

I just wanted to add another perspective as someone who's been through this exact scenario. When I closed my small retail business last year, I had about $800 in inventory that I kept for personal use, and I initially made the same mistake Marcus described - trying to enter it as a negative purchase amount. What finally worked was the approach everyone's outlined here: treating the personal withdrawal as an "other cost" on Line 40. But I wanted to emphasize something that really helped me understand the logic behind this method. Think of it this way: your business had inventory worth $685 at the beginning of the year. Instead of selling that inventory to customers (which would create revenue and reduce inventory), you're essentially "selling" it to yourself at cost. This removes the inventory from your business (hence the $685 "other cost") without creating any profit or loss for the business. The math works out perfectly: Beginning inventory ($685) minus inventory withdrawn for personal use ($685) equals zero remaining business inventory. Your Cost of Goods Sold is also zero because you didn't actually sell anything to generate business revenue. This approach should eliminate those TurboTax errors you're experiencing. The software gets confused when it sees negative purchase amounts, but it handles the "other costs" entry much more smoothly. Keep good records of what specific items you kept and their original cost basis - you'll need this information if you ever sell any of these items personally in the future for capital gains/loss calculations.

I went through this exact same situation about 6 months ago when I had to close my small jewelry-making business due to health issues. Had about $530 in remaining inventory (beads, findings, etc.) that I decided to keep for personal crafting rather than try to liquidate. Like many others here, I initially got frustrated with the tax software errors when trying to handle this. The breakthrough came when I stopped thinking of it as a "purchase" transaction and started thinking of it as simply removing inventory from my business books. Here's what worked perfectly for me on Schedule C: - Line 35: Beginning inventory ($530) - Line 36: Purchases ($0 - no new inventory bought) - Line 40: Other costs ($530 - labeled as "inventory withdrawn for personal use") - Line 41: Ending inventory ($0) This gave me a Cost of Goods Sold of exactly $0, which made complete sense since I had no sales revenue. The business impact was perfectly neutral - no artificial loss created, no phantom income generated. One tip that really helped: I created a detailed inventory sheet listing every item I kept with its original purchase cost. This documentation not only justified my $530 figure but will be invaluable if I ever sell any of these supplies at craft fairs in the future (I'll need the cost basis for personal capital gains calculations). The "selling to yourself at cost" mental model that Fatima mentioned is spot-on. You're essentially closing out your business inventory by transferring it to yourself at exactly what the business paid for it. Clean, simple, and tax-neutral. Marcus, don't let those software errors discourage you - once you use the Line 40 approach instead of trying to manipulate purchase amounts, everything should process smoothly!

I'm so glad I found this thread! I'm dealing with the exact same situation - had to close my small business (selling handmade soaps) earlier this year and kept about $450 worth of remaining inventory for personal use. Reading through everyone's experiences here has been incredibly reassuring. I was also getting those frustrating TurboTax errors when trying to enter negative purchase amounts, and I was starting to worry I was doing something fundamentally wrong. The consensus approach seems crystal clear now: - Line 35: Beginning inventory ($450 in my case) - Line 36: Purchases ($0) - Line 40: Other costs - "inventory withdrawn for personal use" ($450) - Line 41: Ending inventory ($0) The "selling to yourself at cost" analogy really helps me understand why this creates a neutral business impact. I'm not generating income or creating a deductible loss - I'm just closing out the business inventory by transferring it to personal use at exactly what I originally paid. One thing I'm curious about - has anyone had their return reviewed or audited when using this approach? I want to make sure this method is rock-solid from an IRS perspective, especially since it seems like such a common point of confusion for small business owners. Thanks to everyone who shared their real-world examples and numbers. Connor, Dylan, Carmen, and others - seeing your actual situations makes this so much less intimidating!

This thread has been absolutely invaluable! I was in the exact same boat as Marcus - closed my small photography props rental business after a tough year and had about $825 in remaining inventory (backdrops, lighting equipment, small props) that I decided to keep for personal photography projects. Like everyone else, I initially tried to enter this as a negative purchase in TurboTax and kept getting those frustrating validation errors. After reading through all these detailed explanations and real-world examples, I finally understand why that approach doesn't work. The method that worked perfectly for me: - Line 35: Beginning inventory ($825) - Line 36: Purchases ($0) - Line 40: Other costs - "inventory withdrawn for personal use" ($825) - Line 41: Ending inventory ($0) Result: Cost of Goods Sold = $0, which makes perfect sense since I had no sales. The mental framework that really clicked for me was thinking of it as "closing out" the business inventory rather than trying to create some kind of transaction. I'm not selling to myself, I'm not creating a business expense - I'm simply removing inventory from the business books because the business no longer exists. I also took everyone's advice about documentation seriously. Created a detailed spreadsheet listing every item I kept with its original purchase price, totaling exactly $825. This gives me peace of mind for the current filing and will be essential if I ever sell any of these items personally in the future. Thanks to Marcus for asking the original question and to everyone who shared their experiences - Carmen, Connor, Emma, Fatima, and all the others. This community approach to solving tax problems is amazing!