Where do I enter inventory for my business that went "bad" and could not be sold?

[ValerieE · Accepted solution]

There is not a specific place to enter inventory that was unsellable at the end of the year.  The proper way to account for this inventory is to leave it out of your final inventory count.  When you enter your ending inventory do not include the inventory that "went bad".  This way you get a deduction for the cost of purchasing the inventory or the materials and supplies used to manufacture the inventory.

You will only get a deduction for the amount you paid to purchase the inventory.  You do not get to deduct the "lost revenue" from not being able to sell the inventory.