How do I show lost / damaged inventory?

[shawnajamie]

If I have inventory that was damaged and thrown away, how do I show that on my taxes? Everything says that those inventory numbers have to be accounted for so if my end of year inventory is lower than usual because I cleared out damaged and very old items either thrown away or donated (small business and sole proprietor so technically I don't have to report inventory at all but I just learned that and have been reporting inventory / cost of goods for years)  All I can see are casualty losses where it has to be caused by a natural disaster, fire, theft etc - what about just regular reasons like, it fell off the shelf and broke, or I've had it for 5 years and I'm not paying anymore listing fees to keep it in my online shop... I'm not keeping the items for personal use, I got rid of them. 

[PatriciaV]

Report the lost/damaged inventory as "Removed for personal use." This reduces your ending inventory without recording sales. You can then report your donation under Deductions and Credits >> Charitable Donations.

According to the IRS Pub 334 Donation of inventory:    

If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. The basis of donated inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. You must remove the amount of your contribution deduction from your opening inventory. It is not part of the cost of goods sold.

[dhoddy]

This does not explain how to report lost inventory.  Such as by theft or damage.  

Is this just calculated as a loss when you report your EOY inventory amount?  Can you report this loss as an expense as well?

Example;

BOY Inventory $10,000

Purchases   $2,000

Gives $12,000 Inventory.

I sold $8,000 but at end of year my inventory was $3000.

I therefore lost $1000 worth of inventory.

Will this just show as a COGS as $9,000? ($10,000 + $2,000 - $3,000)

I assume my profit would therefore be $1,000.

If this is correct, I would not be able to deduct the losses as a business expense also.

[DaveF1006]

Most of your assumption is correct, Let's break this down.

1. Beginning of Year (BOY) Inventory: $10,000
2. Purchases: $2,000
3. Total Inventory Available: $12,000 ($10,000 + $2,000)
4. End of Year (EOY) Inventory: $3,000 
5. Cost of Goods Sold (COGS): $9000
6. Sales $8000
7. inventory loss $1000. 

You're correct that the $1,000 lost inventory is already included in your COGS. Your initial calculation reflects that your EOY inventory is less than expected because of the lost inventory. This loss affects your COGS directly and as a result, your is Profit=$8,000−$9,000=−$1,000. This is not a $1000 profit that you mentioned but a loss of $1000.

You cannot separately deduct the lost inventory as a business expense because it’s already accounted for within the COGS. The loss has already affected your profit or loss directly and adding this as an additional business expense would be like claiming the same loss twice. You are not allowed to double-dip.

@dhoddy 

[shawnajamie]

Thank you I didn’t plan to deduct it again I just wasn’t sure if I was supposed to fill out a separate worksheet or explain somewhere why the inventory was lower, it just feels weird that it’s that simple, probably because nothing else in taxes is! Everything else seems to require a lot of specific information where this seems so vague. But I feel better about it now, thanks!