Coming to you: freight-in
What you pay a carrier to bring raw materials or finished merchandise to your own location before it is sold. This is a cost of acquiring inventory, and it belongs inside cost of goods sold.
Seller paperwork
Is shipping a cost of goods sold?
Depends which direction the box is moving. Freight paid to get materials or merchandise to you before you sell it is folded into cost of goods sold on a federal Schedule C. Shipping paid to send a sold item out to a customer is a different line entirely, an ordinary business expense rather than a production cost. The IRS instructions behind that split are quoted below, read 2026-08-19.
IRS wording, quotedRead 2026-08-19Written for sellers
One box, two directions
Freight coming in to stock the shelf and shipping going out to a buyer are not the same line on the return.
The direction of the box decides the line
Going to the buyer: shipping out
What you pay a carrier once an order is sold, to move it from you to whoever bought it. This is a selling cost incurred after the sale is already made, not a cost of producing or acquiring the item.
Same word, different form section
Bookkeeping software and everyday speech use shipping for both. The tax form does not; it separates them by what the freight was for, not by which word was used to describe it.
What the Schedule C instructions actually say
Two passages from the Instructions for Schedule C (Form 1040) and the item list in Publication 334, all read 2026-08-19, cover the whole split.
“If you produced real or tangible personal property or acquired real or personal property for resale, you must generally capitalize certain expenses in inventory or other property.” Instructions for Schedule C (Form 1040), Part III, irs.gov, read 2026-08-19
That capitalization rule is where freight-in lives. Publication 334's Cost of Goods Sold chapter, walking the same Part III lines, names Containers, Freight-in and Overhead expenses under Line 39, Other Costs, as items that fold into the figure. A wholesaler's delivery truck, a freight bill from a materials supplier, the fee to bring a container of stock in from overseas: all of it sits here, added to the value of the inventory rather than deducted as a standalone expense in the year paid.
Outbound shipping is covered somewhere else entirely. The same instructions, for Line 18, state: “Include on this line your expenses for office supplies and postage.” A label bought to send a sold item to a customer is exactly that kind of expense, and many small sellers post it there or write it in as its own entry under Part V, Other Expenses. Either way, it is deducted in the year it is paid, and it never touches the Part III calculation.
What that actually looks like on one order
A small seller ships a box of 3 bars of handmade soap to a customer in Chicago. We priced the exact box on 2026-08-19 from Berkeley Heights, NJ 07922 to Chicago, IL 60601.
| Carrier | Service | Price | Estimated transit |
|---|---|---|---|
| USPS | Ground Advantage | $11.12 | 4-5 business days |
| UPS | Ground Saver | $11.22 | 4 business days |
| UPS | Ground | $11.61 | 4-5 business days |
| USPS | Priority | $14.71 | 4-5 business days |
| UPS | 3 Day Select | $16.37 | 4-5 business days |
That $11.12 label is money paid after the soap was already sold, to move it from the seller to the buyer. On Schedule C it is an ordinary business expense, most naturally on Line 18 with the seller's other postage and supplies, or on its own line under Part V. It never enters Part III. Compare that to the wax, oils and fragrance the seller bought to make the soap in the first place: if a supplier's delivery fee showed up on that invoice, that freight-in charge would fold into cost of goods sold, added to what the raw materials themselves cost. Same seller, same word on two different bills, two different sections of the same form.
Charging the buyer for shipping does not move the line
Plenty of sellers add a shipping charge to what the buyer pays, especially on eBay and Etsy. That charge is revenue, reported alongside the sale price. It has no bearing on which section the seller's own cost of sending the box belongs in. Whatever a seller collects from the buyer for shipping, the $11.12 paid to the carrier above still deducts as an ordinary expense in full; the buyer's payment is simply counted as part of what the order brought in. Our guide for eBay sellers covers pricing that shipping line; this page is only about where the cost side lands on the return.
Where these rules come from
- Internal Revenue Service, Instructions for Schedule C (Form 1040) — the capitalization rule for Part III and the Line 18 supplies and postage wording. Read 2026-08-19.
- Internal Revenue Service, Publication 334, Tax Guide for Small Business — the Cost of Goods Sold chapter listing Containers, Freight-in and Overhead expenses under Line 39, Other Costs. Read 2026-08-19.
- Prices: our own capture of one parcel against production on 2026-08-19, mailed from Berkeley Heights, NJ 07922.
This page summarizes federal instructions read on the date shown for a sole proprietor filing Schedule C. It is not tax advice, does not cover every business structure or state, and none of it survives an IRS revision. Check the current instructions or ask a bookkeeper or accountant who knows your filing.
Common questions
Is shipping a cost of goods sold?
Only the shipping that gets inventory to you. IRS Publication 334, read 2026-08-19, lists Freight-in under Line 39, Other Costs, of Schedule C's Part III Cost of Goods Sold. Shipping that goes the other direction, from you to a customer, is not part of that section.
What is freight-in, and why does it count as cost of goods sold?
Freight-in is what you pay to get materials or merchandise to your own door before you sell it. The Instructions for Schedule C, read 2026-08-19, state that a business that produces or acquires property for resale must generally capitalize certain expenses into inventory, and IRS Publication 334 lists Freight-in among the Other Costs on Line 39 that get folded into that figure.
Where does shipping to a customer go instead?
As an ordinary business expense, not cost of goods sold. The Instructions for Schedule C, read 2026-08-19, state for Line 18 to include your expenses for office supplies and postage on that line, and outbound shipping commonly lands there or as its own entry under Part V, Other Expenses, rather than in Part III.
Does charging the customer for shipping change any of this?
No. What a buyer pays you for shipping is revenue, reported alongside the sale. What you pay the carrier to send the box is a cost, and which section of Schedule C that cost belongs in depends on whether the box was coming to you or going out to them, not on whether you charged for it.
Does this apply to every business structure?
This page describes Schedule C, the form sole proprietors and single-member LLCs use. A corporation or partnership reports cost of goods sold on its own return using the same freight-in principle, through a different form. This is not tax advice; a bookkeeper or accountant who knows your setup is worth the conversation once the numbers get real.
