@mel3121 wrote:
Does the consignment shop get a charitable donation deduction. What are the journal entries for the donation and putting the goods into inventory when they become the stores if goods do not sell and are donated.
The above answer from 2019 is incorrect.
With respect to personal property, you can only claim a deduction for the fair market value, or your cost basis, whichever is lower. Found property is considered taxable income. If you find property, and correctly report the fair market value as miscellaneous income, that is your basis, and you can claim the same value as a donation deduction. However, if you don't report the value of the found property as income, your basis is zero and you can't take a tax deduction for donating it.
With respect to business inventory, you can also only deduct the lower of your fair market value or your cost basis. See publication 526, page 10.
https://www.irs.gov/pub/irs-pdf/p526.pdf
For inventory included in this year's opening inventory, you can take a deduction for the donation at either the cost basis or the FMV. For inventory that was not in this year's opening inventory, you don't take any deduction for donating it. You include the cost of goods in your inventory normally. Your tax "deduction" comes from the fact that you didn't get any money for selling the items, therefore you have less taxable income to report.
To give an example, if you buy $1000 worth of inventory and sell it for $3000, you have $2000 of taxable income. If you donate part of your inventory and sell the rest for $2500, then you have $1500 of taxable income. You can't take another deduction because you can't subtract an item from your income if it was never there in the first place.
If you don't include the value of expired consignments as taxable income, you have no basis in the property and can never take a deduction for donating it.
