Merchandise Production Costs

T-shirts, hoodies, hats, and other branded merchandise production for your content brand.

Tax Form

Schedule C, Line 8 or Part III (COGS)

Estimated Savings

$500-10,000/year

Income Level

Growing ($25k-$100k)Established ($100k+)

How It Works

Merchandise production costs are deductible, but how you deduct them depends on the purpose. Branded promotional items given away are advertising expenses (Line 8). Merchandise produced for resale is inventory and goes into Cost of Goods Sold (Part III). Understanding this distinction is important for proper tax reporting.

IRS Rules & Requirements

Promotional merch (giveaways): Deduct as advertising (Schedule C, Line 8)
Merch for resale: Include in Cost of Goods Sold (Schedule C, Part III)
Production costs include: Manufacturing, printing, design, packaging
Cannot double-deduct same expense as both advertising and COGS
Keep production invoices and inventory records

Real Examples

500 branded t-shirts for sale at $8/each production cost = $4,000 COGS

100 promotional hoodies for giveaway at $20/each = $2,000 advertising expense

Design fees for merchandise artwork = deductible as production cost

Common Mistakes to Avoid

Deducting inventory for resale as advertising expense
Not tracking inventory for merchandise sold
Forgetting design and setup fees are also deductible
Missing deduction for packaging and labeling costs

Pro Tip

Print-on-demand services (Printful, Printify) simplify both production and taxes - you only 'purchase' inventory when a customer orders, making cost tracking straightforward.

Related Deductions

📦

Shipping & Packaging Supplies

Postage, boxes, packing materials, and shipping costs for merchandise and business materials.

📢

Advertising & Promotion

Social media ads, sponsored posts, promotional materials, and marketing costs.

🎁

Giveaway Prizes

Products and prizes given away to followers for promotional purposes.

Not sure if you qualify?

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