What would you say if I told you there is a way to earn more money with your direct sales business, and you do not have to sell more products or recruit more team members to do it?

How does that sound to you?

Well, instead of showing you how to earn more, I will show you how to keep more of your money and pay less tax on it with these easy-to-track direct sales tax deductions.

Calculating your taxable business income correctly and not missing potential tax deductions is key to keeping as much of your income as possible.

As I told you in our story, my wife got into direct sales for the free stuff, so taxes were not even in our minds then.

Once my wife started being more and more successful, and we had to pay a pretty hefty tax bill, we knew we had to get serious about writing as much off as we possibly could.

We also knew we had to get serious about tracking everything.

Those early days of struggling with a spreadsheet were not super fun, but it allowed us to have good records and maximize our deductions.

So, of course, we now use Direct Sidekick to make it all quick and easy to track all of our income, expenses, and inventory.

Why are direct sales tax deductions so important?

Tax deductions can have a huge impact on any direct seller’s bank account! Meaning, they can save you a lot of money.

Here is a quick example.  Let’s say you earn $30,000 in total income in a year. Currently, the federal self-employment tax rate is 15.3% which would require you to pay $ 4,238.87.

Now, what if you were able to deduct more things from your earnings? How would that impact how much you have to pay in taxes?

Let’s say you were able to deduct $5,000 in expenses. Your new tax bill would be $3,532.39.

That could be a savings of $706.48!!!

Would $706.48 make a difference in your life? What would you do with the extra money next year?

Now, what if you kept really good records and found $7,500 in tax write-offs next year? This will include your mileage tracking, writing off your home office expenses, and all the other write-offs listed below.

These additional write-offs would lower your taxable business income to $22,500 and lower your tax bill to $3,179.15.

That would save you a total of almost $1,060!!! Now that makes a difference.

Early on, a lot of direct sellers are just like we were. They either don’t know what they can write off on their taxes or don’t think it is worth their time. Too bad, as this is very easy to do and can pay off very well for direct sales representatives.

Here are the direct sales tax deductions:


Income is everything you have earned. Sounds simple enough, right?

But what about products you were “given” by your company for recruiting or having a certain number of parties in a given month?

That’s all considered income to you as well, and if you check your 1099, it probably shows up there.

Income includes things like free products received, incentive trips earned (although you can write that off as we will see later), and products “purchased” with “shopping sprees” or credits earned.

Some direct sales companies give their consultants shopping sprees (credits) that they can use to buy company products.

This only becomes income when used to purchase products unless your company includes this on your 1099.

My wife’s shopping sprees go away if she doesn’t use them, so she does not earn anything until she actually does (of course, she always does).

Of course, any commission you make on your own sales or your team/downline sales is also added to your income.

Startup costs

If you are just starting out as a direct sales consultant, you can deduct up to $5,000 in business startup costs and $5,000 in organizational costs. Examples include:

  • Your starter kits.
  • Fees you paid to become a consultant.
  • Costs you incurred researching different companies.
  • Any fees you paid for training.

Organizational costs are costs you paid to set up your business entity (highly recommended).

Cost of Goods Sold

There is a lot of misunderstanding about handling inventory for direct sales businesses. Many people are unsure if they are required to track their inventory and when to write off its costs.

To be very clear, if you receive and hold any product for resale, you must track your inventory and costs for the inventory.

When you sell the inventory, you are allowed to write off the costs for those products.

However, you will not write off the costs when you purchase the product, only when you sell it.

Let’s use an example to illustrate this:

On December 1, 2016, I purchased ten of my best-selling products for $20 each for a total cost of $200. On February 4, 2017, I had a vendor event and sold 5 of the products. When do I write the cost of those products off?

I can write off the cost of the products in February 2017 and not December 2016.

How is Cost of Goods Sold (COGS) calculated for direct sellers?

The first thing to remember is that this is all using YOUR COSTS for the products, NOT the retail cost.

Beginning Inventory – Adjustments + Inventory added during the year – Ending Inventory.

For example, let’s say I started the year with $2000 worth of products. Then, I used $200 of products for personal use, purchased another $500 in new products, and ended the year with $800 of products left.

My cost of goods sold will be $2000 – $200 + 500 – $800 = $1500 COGS

Of course, many direct sellers join specifically for free products. Unfortunately, you cannot deduct the products used for personal use, as seen above.

You may also write off products given away as samples or incentives to host parties as an advertising expense and not part of cost of goods sold (see next point).

COGS sounds difficult, but Direct Sidekick provides a full COGS report so you don’t have to calculate the numbers yourself.


Expenses for advertising your business include:

Car and Truck Expense (Mileage)

The mileage deduction could be one of the more significant tax deductions you will have in direct sales. This, of course, assumes you travel to home parties or vendor events. My wife’s mileage deduction was her second-largest deduction category last year.

For 2023 the mileage rate is 65.5 cents per mile. What that means is if you drive 40 miles round trip for a home party, you can write off $26.20.

Well, what if you do one party per week, 50 weeks per year?

This could be a write-off of $1,310!

I highly recommend getting a good mileage tracking app for your phone that tracks every trip AUTOMATICALLY for you. At the very least, a pad of paper always in your car to track your mileage, including:

  • Your mileage
  • The dates of your business trips
  • Places you drove for business
  • The business purposes for your trips

Remember, you can write off your miles to the bank to deposit your party checks, the post office to send thank-you letters or hostess packs, or when you drive to purchase office supplies, or anything related to your direct sales business.

Don’t miss mileage deductions!

Once you have a good tracking app, it is effortless and can be a significant write-off for you.

Contract Labor

Contractors may be someone that you paid to set up a website for you. It is also possible to have an assistant as a contractor, but there are many rules to ensure she is not your employee.  This includes not setting their hours among other things.

If they are working on their own time and not considered an employee, you can write off what you pay them in this category.

If you’re unsure, I suggest discussing it with your accountant.

If you pay a contractor (an individual or LLC) more than $600 in any given year, you must provide them with a 1099-MISC by January 31st.

Legal and professional fees include attorney fees, accounting fees, and other fees for professional services you use.

Office Expenses

Office Expenses are the expenses of running an office. Think about monthly or yearly costs for apps such as Direct Sidekick and other software you may use.

If you pay a monthly fee to your direct sales company for an office suite or website, this is an office expense.

If you have a website, hosting fees and annual domain name registration fees are also deductible expenses.


Supplies are the things you purchase for your office. Think tangible, traditional office supplies here.

  • File folders
  • Printer paper
  • Thank you cards
  • Printer ink or printing services
  • Postage


Do you have to pay state taxes on your business? Well, great news (please read the sarcasm here)!  You can write it off.

Here are taxes that may be written off:

  • Income taxes paid at the state level.
  • Employment taxes. If you have an employee, you can write the taxes you paid for them out of your pocket, such as social security, Medicare, and unemployment.
  • Self-employment taxes. I deducted this from the examples at the beginning of this article when calculating how much you can save by tracking tax deductions. As you are self-employed and paying self-employment taxes, the IRS allows you to deduct 50% of the taxes paid.


Travel write-offs can be a bit tricky.

You must keep great records and make sure you are only writing off business travel.

You may deduct the following expenses while traveling for your business:

  • Your transportation such as airplane tickets, bussing, taxi, and car rental.
  • Baggage and shipping, including if you have to ship supplies or inventory to the location.
  • Car expenses, whether rental or standard mileage. Also, tolls and parking fees.
  • Costs for your lodging (hotel, condo, etc.).
  • Your meals. You may write off 50% of your meals during your trip.
  • Dry cleaning and laundry expenses.

So what to do if you are combining business travel with a family vacation?

If this is the case, you can only deduct things that are directly related to your business.  You may not deduct expenses for your entire family if you are the only one working.

For example, if my family travels with my wife for her business, we can only write off the cost of a room that she would need, not the total cost we incur.  If a single room costs $125 per night, but we have to upgrade for the entire family to a room costing $200, we can only write off the $125.

Kiekover, Scholma & Shumaker, PC has an excellent article on combining vacation and business travel to maximize your deductions. One key point is to have at least one business appointment scheduled BEFORE leaving for your destination.

We were blessed with an all-expenses-paid trip to Hawaii.  We added a few extra days on top of that.

The cost from the company showed up on her 1099 as income, and we were allowed to write that off.

But, of course, we were not permitted to deduct the extra personal days we added as we did not have business appointments scheduled for those days before we left for the trip.

Business Meals

Your direct selling business is not done solely in your home office, is it?

How many times have you met with a potential recruit for coffee or lunch?

You can write this off.  As with all expenses, please keep your receipt and jot a note on it to remember who you met with and what you discussed.

To write this off, you must have a business-related discussion during the meal.  So, for example, if you are friends with the recruit, getting together for dinner on Friday night, and never talking about the business, you cannot write it off.

How much can you deduct?

When it comes to meals, you can deduct 50% of the total amount you paid.  For example, let’s say you spend $50 on a meal with a potential recruit.

You can deduct $25 for that meal from your taxes.

Still, record the total amount and keep your receipt.

You cannot deduct the total cost if you split the bill, only the amount you paid.


Similar to the contractor expenses above, you can deduct all costs due to having an employee.

If you hire an employee, you will have to handle payroll and employee taxes.

Do you have an assistant working with you?  Some direct sales consultants do.

They have someone help with setting up hostess packs, writing thank you cards, and so on.

If they’re an employing and you run payroll for them, use the wages expense category.

If you don’t run payroll for them, nor require certain hours, use the contractor expenses category.

Other Expenses

Sometimes expenses don’t fit neatly into the other categories. That’s why the IRS includes an “Other Expense” category.  Some things that fall under this category include:

  • Education Expenses
  • Licenses
  • Subscriptions to professional publications
  • Cell phones as a percentage of business use

Home Office

The home office write-off is one of the wonderful perks of direct sales (as well as writing off mileage, of course).  As long as you are using the office exclusively for your office, you can write it off.

With direct selling, you can also write off a home office used to store products and supplies, even if it is not used exclusively for your business!

The home office deduction is such a big deal that I have devoted another blog post solely to this topic.

Read the full home office deductions article.

Basically, with the home office deduction, you figure out the percentage of your home used for your office. Then, once you have that, you can deduct that much of your expenses.

For example, let’s say your home office is 10% of your house.  You would then be able to deduct 10% of your mortgage or rent, utilities, property taxes, water, and waste disposal.

Wrapping it up

Tracking these direct sales tax deductions is simple to do with the right tools.  Direct Sidekick offers an all-in-one web-based application for tracking your tax deductions.

We make this SIMPLE by automatically calculating your taxable business income in an IRS Schedule C Worksheet (Profit & Loss report) when you enter your transactions.

We do the hard work so you can spend your time on more important things!!!

FYI: Direct Sidekick is accounting software built for direct sellers, network marketers, crafters, vendors, VRBO owners, and many other home-based business owners. Create an account and start tracking your income, expenses, and inventory.

I’m ready to start my 14-day free trial!
Don’t wait to get organized and grow your business!

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  1. Direct Sales Tax Deductions: The Complete Guide 1
    Tina Boyd May 1, 2024 at 2:22 am - Reply

    Hi. If I bought product, then became a direct sales rep and use the product for demos is the product able to be counted as advertising, and if so how far back?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta May 1, 2024 at 8:07 am - Reply

      Hi Tina! You can deduct products used for demos as advertising expenses. If the products were purchased while you were researching companies to sell for, you can also deduct startup costs.

  2. Direct Sales Tax Deductions: The Complete Guide 3
    Marian Evans-DiMarco March 28, 2024 at 8:04 pm - Reply

    Sorry! For the typos! Didn’t have my glasses on..

  3. Direct Sales Tax Deductions: The Complete Guide 3
    Marian Evans-DiMarco March 28, 2024 at 8:03 pm - Reply

    Thank you for answering my first question!! If my home is 1969 sq st and my hoe office is 135 sq ft, what is the percent I can write off from our home expenses? Thank you so much!! I want your program!!!

  4. Direct Sales Tax Deductions: The Complete Guide 3
    Marian Evans-DiMarco March 27, 2024 at 12:03 am - Reply

    As a Brand Ambassador for a supplement company, I am required to purchase 60 points in personal volume ( which is around $ 140.0o per month) to qualify for any commissions. That is a monetary requirement to be paid. Can I deduct the full amount as a business expense? Without it, I don’t have a business. Thank you!

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta March 28, 2024 at 7:10 am - Reply

      Hi Marian! Great question! Unfortunately, buying products for personal use is not a deductible expense. If you turn around and sell it, you can deduct your costs for the sold product. Technically, the costs are added to cost of goods sold (COGS) which lowers your taxable business profit. Or, if you give some of it away for marketing or use it for demo/advertising reasons, you can deduct it as an advertising expense.

  5. Direct Sales Tax Deductions: The Complete Guide 8
    Tom McCorkle March 17, 2024 at 1:14 pm - Reply

    Hi, My wife is selling Juice Plus and received a 1099-NEC. Included in this reported income are discounts on items that we purchased and used. Can we deduct these purchase discounts from her reported 1099 income? Thanks

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta March 20, 2024 at 11:59 am - Reply

      Hi Tom! You can’t deduct personal use products from your taxes. If your wife is receiving a 1099 for the discount, Juice Plus is considering that as payment to her (so income). You may want to speak with an accountant if you’d like to discuss this further. Another thing to look at is maximizing the expense deductions from her business to offset her income.

  6. Direct Sales Tax Deductions: The Complete Guide 10
    Jenny January 31, 2024 at 9:31 pm - Reply

    If I start with a direct sales- such as Avon this year, and don’t end up doing well- Can I still submit all of my tac deductions next year? What is considered profit?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta February 1, 2024 at 6:30 am - Reply

      Hi Jenny! Thank you for your comment! If you start a direct sales business this year, whether it goes as expected or not, you can deduct your expenses on your 2024 taxes. Profit is what is left after you subtract your expenses from your income (what you earn). You do not need to be profitable to deduct your expenses. Many businesses are not profitable in their first year due to startup costs. With Direct Sidekick, your income and expenses are automatically imported and categorized for you. If you sell inventory with Avon, say at vendor shows, you can easily track that as well in Direct Sidekick.

  7. Direct Sales Tax Deductions: The Complete Guide 12
    Tami G September 14, 2023 at 12:32 pm - Reply

    Hello – With direct sales, doesn’t one need to make a minimum amount of income before being able to deduct expenses? If so, what is that minimum? Thank you for a great article!

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta September 14, 2023 at 3:19 pm - Reply

      Hi Tami! Great question! There isn’t a minimum amount of income required to be able to deduct expenses. Per our CPA, there are no limits on the amount of deductions as long as they are truly for business expenses. Next, three out of five years need to be profitable before being classified as a hobby and losing the ability to deduct business expenses. Please let us know if you have further questions.

  8. Direct Sales Tax Deductions: The Complete Guide 14
    Debbie March 22, 2023 at 2:31 pm - Reply

    This is great information. I have been selling Tupperware for over 30 years and over the last 2 years, business has declined greatly. I still have most of the same expenses (cell phone, mileage, advertising, etc) but now I’m showing a loss on the business. Doesn’t this open me up to be audited? I hate taking the loss but the expenses are still valid. I don’t want to give up on my business as I belive the trend will change and I will see profit once again.

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta March 22, 2023 at 2:52 pm - Reply

      Hi Debbie! Sorry to hear business is down. I can’t speak to the likelihood of being audited. As long as your expenses are legitimate business expenses you can claim them. You do need to show a profit in three out of five years before being classified as a hobby and losing the ability to deduct business expenses. I wish you the best of luck in changing the trend and showing a profit again!

  9. Direct Sales Tax Deductions: The Complete Guide 16
    Jeremy February 25, 2023 at 6:59 am - Reply

    Steve, thank you so much – this is the best explanation of all this that I have found after searching extensively! And these comments are very helpful as well.
    Here’s my question:

    My wife has just started selling jewelry/accessories products from NoonDay collection, and has spent the first six months or so using most of her income from the business and earned product credit to purchase more items for demonstration purposes at her trunk shows (like a startup kit of sorts). These items basically sit in a suitcase, and she shows them off, but the intention is not for resale. At some point in the future, when each line is discontinued, it won’t make sense for her to show them anymore, because people won’t be able to buy them, and she’ll decide to either sell or keep a discontinued item.

    I feel like there are three options: (1) Is this just inventory and not advertising because of the possibility of future sale? This seems strange because some items may never be discontinued… (2) are these purchases just advertising and then become inventory at some point in the future when she decides to sell it? (3) or is it both inventory and advertising expenses at the same time?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta February 27, 2023 at 11:47 am - Reply

      Hi Jeremy! If the items are being used for demonstration/advertising purposes, they are considered an advertising expense. If she later sells them, she already deducted the costs as an advertising expense when she purchased the products, so the costs are not able to be added to cost of goods sold.

  10. Direct Sales Tax Deductions: The Complete Guide 18
    Julie February 4, 2023 at 2:02 pm - Reply

    Which category do I add these items to? I make an inventory purchase of $50. I sell the product to a customer for $50. I personally spend $5 (expense) to ship that product to the customer. The customer reimburses me the $5. So she sends me a payment of $55. Do I have 3 different categories? Hopefully that makes sense.

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta February 7, 2023 at 8:52 am - Reply

      Hi Julie! If you purchase the product for your inventory for resale, you’ll enter the products into your inventory at your costs, including shipping ($55). When you sell the product to your customer, you’ll record the $55 she paid you as income. Your costs for the product ($55) will then be added to cost of goods sold (COGS). I assume then you are paid commission on your purchase which is entered as income.

      Now, if you were placing the order for your customer and shipping directly from your company to your customer. You never received the product so you don’t add it to your inventory. In this case, you’ll enter a supplies expense for $55 for what you paid for the product and shipping. Then you’ll add the $55 you are paid from your customer as income. As in the example above, I assume then you are paid commission on your purchase which is entered as income.

      So, there is a difference depending on if you are reselling from your inventory vs. just ordering and direct shipping to your customer.

  11. Direct Sales Tax Deductions: The Complete Guide 20
    Alisha January 26, 2023 at 3:22 am - Reply

    I sell Color Street nails, I purchased bunch of sets at full cost so that I could host a vendor event are all those considered supply? Also, if someone asks me to buy a set for them at full price and rhey are just paying me back because I am saving them the taxes and shipping fees, is that considered income?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta January 26, 2023 at 7:52 am - Reply

      Hi Alisah! Great questions! You deduct your inventory costs when you sell it. So in your example, you will deduct the costs for your nails when you sell them at the vendor event. When you are paid for your nails, you will record that as income. Here’s how this works:

      When you purchase $100 in nails + tax and shipping ($110 total for this example), that is entered into your inventory at your cost ($110).
      You earn your commission of $35 on this, which is deposited in your bank account.
      When you sell them for $100 at the vendor event, $100 will be added to your income, and $110 will be added to cost of goods sold (COGS).

      For your accounting, this works out as:

      +35 (commission income)
      +100 (sale income)
      -110 (cost of goods sold)
      For a net profit of $25

      Using Direct Sidekick for this, your income will be imported and categorized as income automatically when it is deposited in your bank account. You’ll enter your purchase into inventory. When you sell your items, you’ll enter an invoice for the sale. Most of this is done for you automatically!

      You can try Direct Sidekick FREE for 14 days here!

  12. Direct Sales Tax Deductions: The Complete Guide 22
    Megan Fulkerson October 3, 2022 at 10:48 am - Reply

    Hi there! Is there a cap on how many deductions or a cap on dollar amount of deductions you can have? Everytime I add another line I think “is there a cap to this that I don’t know about and will I get screwed come tax time”? Also, do you know how many years you can take a business loss in the beginning of building your empire? Lol

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta October 3, 2022 at 12:20 pm - Reply

      Hi Megan!

      Great question! Per our CPA, there are no limits on the amount of deductions as long as they are truly for business expenses. Next, three out of five years need to be profitable before being classified as a hobby and losing the ability to deduct business expenses.

  13. Direct Sales Tax Deductions: The Complete Guide 24
    T Campos April 18, 2022 at 3:24 pm - Reply

    What about minimum monthly purchases in order to qualify to receive commission? Do those count as an expense?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta April 19, 2022 at 7:51 am - Reply

      Hi There! Thank you for your question. As long as the purchases are for business use, you can deduct them as an expense.

  14. Direct Sales Tax Deductions: The Complete Guide 26
    Kellie April 1, 2022 at 10:51 am - Reply

    I have a direct sales business with kitchen tools. If I buy food to use to demo my products does this fall under the advertising as well?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta April 1, 2022 at 11:08 am - Reply

      Hi Kellie!

      Great question! You may deduct your cost for purchases used to demo your products as an advertising expense. Please let us know if you have other questions. Thanks!

  15. Direct Sales Tax Deductions: The Complete Guide 28
    Sandy March 12, 2022 at 4:30 pm - Reply

    I sell skincare as part of my business. Someone told me that I can deduct my personal use skincare items as advertising. Is that correct?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta March 14, 2022 at 9:55 am - Reply

      Hi Sandy!

      Great question! Typically personal use products are not tax-deductible. Demo products are, so you can deduct those products if you are using the products to demo them. If you use the products and post pictures or videos online, that would be an advertising expense. This may be an excellent question for your accountant where they can get a better view of how you are using this as an advertisement.

  16. Direct Sales Tax Deductions: The Complete Guide 30
    Kelly February 13, 2022 at 10:19 pm - Reply

    I buy products thru my mentors site to use and promote my business. My Clients buy products from the company thru my site. Would the products I purchase & use thru my mentors web site to promote my business and get clients be a deductible expense?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta February 14, 2022 at 9:40 am - Reply

      Hi Kelly! If you buy the products from your mentor’s website for resale, then you will deduct your costs for those products when you sell them. If you buy those products and give them away as promotions, then your costs for the products can be deducted as an advertising expense.

      When using Direct Sidekick, if some or all of the products are for resale, you can enter your purchase as a purchase order. Then when you sell them, you can invoice them out to remove them from your inventory and have your costs automatically added to cost of goods sold (COGS). If you give them away, you can use an adjustment where the products will be removed from your inventory, and your costs will be added as an advertising expense. Otherwise, if they are only used as giveaways, you can enter your costs as an advertising expense.

      Let me know if you have any other questions. Thanks!

  17. Direct Sales Tax Deductions: The Complete Guide 32
    Monica June 17, 2019 at 6:19 am - Reply

    What if you have inventory that you end up using as a demo product at parties?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta June 17, 2019 at 10:29 am - Reply

      Great question Monica! We will update the article in the near future to make this more clear. These products are considered a cost of promotion so they would fall under the Advertising category.

      If the products are used for resale then they would be considered inventory and deducted at their cost when they are sold.

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta July 1, 2019 at 4:04 pm - Reply

      Just a quick note to let you know we just updated the article to clear up a few points including demo products.

  18. Direct Sales Tax Deductions: The Complete Guide 35
    Rebecca Johnson February 1, 2019 at 12:06 pm - Reply

    If your COGS example above:
    ($2000 – $200) + 0 – $800 = $1000 COGS

    What does the 0 represent? Would that be samples or giveaways?

    • Direct Sales Tax Deductions: The Complete Guide 2
      Steve Nauta February 1, 2019 at 2:55 pm - Reply

      Hi Rebecca, thanks for your question! The 0 in the example is assuming you did not add any inventory during the year. It was an oversimplified example. Here’s another example:

      (Beginning Inventory – Personal Use) + Inventory added during the year – Ending Inventory.

      Let’s say you start the year with $10,000 worth of products. You use $400 of product during the year for personal use. You add $3,000 in inventory during the year and ended the year with $8,000 with of products left.

      The cost of goods sold will be ($10,000 – $400) + 3,000 – $8000 = $4,6000 COGS.

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