36 — Purchases Less Cost of Items Withdrawn for Personal Use Updated for tax year 2025

What this line means

The total cost of merchandise, raw materials, or products you purchased for resale or use in manufacturing during the tax year, minus anything you withdrew for personal use. If you took inventory items home for yourself or your family, subtract the cost of those items here. Only include purchases directly related to products you sell — not office supplies, tools, or other general business expenses.

Does this apply to you?

• You bought products for resale — wholesale goods, raw materials, components
• You purchased raw materials used in manufacturing your products
• You withdrew any business inventory for personal or family use during the year
• You import goods for resale and need to include duties and freight-in costs

Easy to overlook

Items withdrawn for personal use must be subtracted If you own a bakery and take bread home for your family, or you run a clothing store and keep items for yourself, the cost of those items must be subtracted from your purchases. You cannot deduct the cost of items you consumed personally. Failing to subtract personal withdrawals overstates your cost of goods sold. ¹ [SOURCE: IRS Schedule C instructions — Part III, Line 36]

Freight-in and import duties are part of purchases The cost of getting inventory to your location — shipping charges from suppliers, import duties, customs fees — is part of your purchase cost and belongs on this line. These costs are not separate business expenses on lines 8-27. Outbound shipping to customers is a separate expense that goes on line 27a. ² [SOURCE: IRS Publication 334 — Tax Guide for Small Business]

Watch out for this

Including purchases of supplies, tools, or equipment on this line. Line 36 is only for merchandise purchased for resale or raw materials used in manufacturing. A plumber who buys a new wrench reports that as an expense (line 22 or line 13), not a purchase on line 36.

Related lines on your return

• Line 35 — Schedule C — Inventory at beginning of year; combined with purchases to calculate goods available for sale
• Line 38 — Schedule C — Materials and supplies; separate from inventory purchases
• Line 42 — Schedule C — Cost of goods sold; purchases are a key component