38 — Materials and Supplies Updated for tax year 2025

What this line means

The cost of materials and supplies consumed in the manufacturing or production process. This includes items like packaging, labels, containers, and production consumables that become part of getting your product ready for sale but are not the primary raw material (those go on line 36). This line is separate from line 22 (supplies), which covers supplies used in providing services or running the business.

Does this apply to you?

• You buy packaging, labels, or containers for products you sell
• You use production consumables — sandpaper, solvents, dyes, adhesives — in manufacturing
• You purchase incidental materials used in the production process
• You buy shipping materials that are part of preparing products for sale

Easy to overlook

Line 38 materials vs. line 22 supplies Materials and supplies used in the production of goods go on line 38 as part of cost of goods sold. Supplies consumed in running the business but not tied to production go on line 22. Packing tape used to box products for shipment belongs on line 38. Packing tape used to seal office storage boxes belongs on line 22. The distinction is whether the item is part of the production process. ¹ [SOURCE: IRS Schedule C instructions — Part III, Line 38]

Small-dollar production materials still belong here Even inexpensive production materials — a $5 jar of glue, a $10 roll of labels — add up over the year. Track these purchases throughout the year rather than trying to reconstruct them at tax time. Many sole proprietors forget to include small production consumables and understate their cost of goods sold. ² [SOURCE: IRS Publication 334 — Tax Guide for Small Business]

Watch out for this

Putting all materials and supplies on line 22 (expenses section) instead of splitting production-related items to line 38 (cost of goods sold section). If you manufacture or produce goods, the materials consumed in that process belong here in Part III. The total deduction is the same, but the classification affects your reported gross profit margin.

Related lines on your return

• Line 22 — Schedule C — Supplies; for non-production supplies
• Line 36 — Schedule C — Purchases; for raw materials and merchandise bought for resale
• Line 42 — Schedule C — Cost of goods sold; this line feeds into the final calculation