Inventory - is it better to write off inventory that is discontinued or donate it?

[concerned2]

What about expired inventory?

[AmyT]

There is no advantage, from a tax perspective, to writing off inventory as opposed to donating it.

Either way you handle it, you will receive a deduction via cost of goods sold (COGS), for the cost of the inventory.  

When you enter your inventory purchases and ending inventory, TurboTax makes the calculation of "COGS cost" for the year based on these numbers and you beginning inventory.  If you do not include the cost of the items donated, written off, or expired in your ending inventory, these items will automatically be included in COGS.

Note:  You will not include the cost of these items as "donations" or "write downs" separately on your schedule C.

[MP1313]

How do I list something as having been donated?

I closed my business with more than a $3000 loss last year and donated the remaining merchandise. I can't seem to figure out where or how to include this in my Business TurboTax reporting. Everything I do seems to end the previous year at a loss and last year at just $0. 

Where do I need to document that I still had the same loss from the previous year? How do I get this to become a deduction??

[JeffreyR77]

If your business is an S-Corporation, you should have had a Beginning Inventory from 2019 plus Purchases in 2020. 

Then there would have been inventory sold during the course of the year's business with the remaining inventory prior to donation. 

The Ending Inventory needs to be distributed to you to make the donation at year end, reducing your capital account.   

The S-Corporation cannot make the donation.  It is considered a disregarded entity - the donation flows to you on your personal return.

The change in your capital account gets reflected on your K1(1120S) and the donation is made by you and can be reported on your Schedule A if you have enough itemized donations to itemize on your individual tax return.

[coolbluefrog]

Is that true though? I believe that there is a tax advantage in the US for C-corps. 

"The tax break comes thanks to a piece of tax code that many people haven’t heard of: Internal Revenue Code Section 170(e)(3). It provides C Corporations with a tax deduction equal to up to twice the cost of donated products, when they donate those products to qualified nonprofits.

Under the tax code, deductions are equal to the cost of the inventory donated, plus half the difference between the cost and fair-market selling price, not to exceed twice the cost.

For example, if your product cost $10 and you sell it in store for $30, the difference is $20. Half of $20 is $10. So, $10 (Product Cost) + $10 (Half the Difference) = $20 Deduction. Twenty dollars does not exceed twice the product cost, so it does not exceed the maximum allowable deduction."

Source: https://www.supplychainbrain.com/blogs/1-think-tank/post/29181-can-donating-merchan[product key remo...

[Mike9241]

@coolbluefrog but C-corps also have disadvantages. profits are taxed federal and perhaps state. if the earnings are distributed there can be a second tax. there is IRC section 531 which imposes an additional tax of 20% on excess accumulated income if not paid out as dividends. admittedly the 531 tax is only assessed when the IRS determines that the accumulated earnings exceed the accumulated earnings credit and is in excess of the reasonable needs of the business.  also if the item is saleable, there may be more net cash by selling than by donating.(the tax savings)