I need to know how to handle inventory after closing my business.

[jenny2]

I closed my business in December of 2015.  In the end, I have about 12,500 dollars in inventory that I want to keep for personal use.  Do I claim that my inventory is 0, then claim 12, 500 for purchases withdrawn for personal use?  Or do I claim 12, 500 in inventory, then zero it out by claiming 12,500 for purchases withdrawn for personal use?  I am a sole proprietor.  I do not want to donate or destroy my inventory.  I am reading a lot of conflicting information.

[SusanH · Accepted solution]

You will say that ending inventory is zero and also enter Purchases Withdrawn for Personal Use. 

The most basic formula for account for inventory is:

• Beginning Inventory (this should be the same as your ending inventory for 2014)
• Plus Cost of Purchases
• Minus Cost of Goods Sold
• Equals Ending Inventory (since you’re closing your business, this is zero at the end of 2015)

There are other numbers in the middle one of which is Purchases Withdrawn for Personal Use. You enter the amount of inventory withdrawn for personal use so that the amount you kept for personal use isn’t included in your Cost of Goods Sold.

This is how you will enter the information for the inventory section:.

• After going through the preliminary screens for inventory, you reach “Report the Value of Your Inventory”
• Beginning of 2015 – the same amount of your ending inventory for 2014
• End of 2015 – Zero
• On the following screen, “Tell Us the Cost of Your Goods”
• You will enter $12,500 at the Purchases Withdrawn for Personal Use

Make sure you also enter any other data you have for this screen such as Cost of Purchases. 

[cerickson]

What if I give away most of the inventory instead of keeping it for myself. 

I'll have zero sales and zero inventory at year end.  I actually did not even continue the business after the first day of 2020.

[ThomasM125]

It doesn't matter if you give it away versus keep it. You don't get a deduction because you give things away.

The issue here is what the value of the items are. If they decreased in value so that on the last day of the business they were worth less than what you paid for them, you could reduce the cost of items withdrawn for personal use to reflect the deceased value and you would get a business deduction for that. But once they are out of the business, you can't take a deduction on the items as they become personal assets, the loss on which is not deductible.

[kylehable]

Hi,

I had inventory and dissolved my LLC in Virginia in 2021.  I moved and started a new LLC in my new state (California) in 2021 as well and use the same inventory that I had in Virginia. Do I enter zero for my ending inventory in my Virginia LLC and not enter it as taken for personal use since I am using it as my starting inventory for my CA LLC? 

Thank you!

[DianeW777]

You would enter it as withdrawn for personal use since you ended the business and then started a new business.  It will be part of your ending inventory in the new business but it will not be part of your purchases or products for resale in your new business.  

Option: If the new business buys the remaining inventory from the old business, you could include the income in your VA LLC and enter a zero ending inventory for that company which would create a wash for that inventory.  Then include the purchase with other inventory purchases in the new LLC in CA.  This would be the simplest transaction for recordkeeping and the tax returns.

@kylehable

[jokotax13]

Self Employed business was lost on 12/31/20. How do we report remaining inventory as a loss on 2021 taxes? and how is it calculated?

[PatriciaV]

@jokotax13

Please clarify how the business was "lost." Was the inventory destroyed or stolen? Or do you still have it but consider it worthless?

[jokotax13]

Doctor closed practice on 12/31/21 forcing me to shutdown self employed business. Inventory has not been stolen or destroyed and is worth some money.

[PatriciaV]

@jokotax13

Yes, if your business has closed and you kept the inventory, you would report the remaining inventory as withdrawn for personal use, which would bring your ending business inventory to zero.

[jokotax13]

Is there any tax reductions for this event.

[ZoltanB45]

My advice would be to try and sell the inventory this year.  Get whatever you can get and if you get less than the amount you paid for it, you would report the loss on next years tax return.

[sunkist626]

Hi @ZoltanB45,

I have been selling  music instruments online. now want to retire. How do I handle damaged inventory ($2300) which are not sellable, they were purchased back in 2008(the last purchase for the business). There's $0 sales in 2021, want to close business. what is the proper way to report this inventory on schedule C? can I enter  $0 as EOY inventory, and the full $2300 as COGS therefore would be a loss of $2300 for 2021? 

Background infor: in the past few years, the sales are less than $10k therefore the scale of business is very small.

thank you!

[ErnieS0]

Yes. Enter $0 for ending inventory and claim a loss. if you simply closed the business and disposed of the damaged goods.

[sunkist626]

@ErnieS0  thanks! Do I include an explanation on what happened to the inventory to IRS? If yes, where can I add the message in Turbo Tax?