This is a good reason to report your goods as inventory. Makes it easier. But you can still claim the expense if instead you report what you pay for your supplies and ingredients as a supplies expense.
Once you've claimed it, it's deducted. If you don't sell it, you just have no income to report for it it all. It does not change the fact that it's still deducted.
Example:
I purchase 5 pounds of dough, a pound of flour at a total cost of $20.
With that, I make 50 loaves of break and sell 40 of those loaves at $5 each.
I have a supply expense of $20.
I have a gross sales income of $200.
Net taxable profit is $180
If I end up throwing out the 10 loaves I didn't sell, that changes nothing. My supply expense is still $20, the gross sales income is still $200 and the taxable profit is still $180.
If I only sold 10 loaves of bread, that gives me gross sales income of $50. Doesn't change my supply expense of $20. But it means I only have $30 of taxable income on the sales.
You can't deduct anything more for the bread you throw out, because it's already been deducted as a supply expense.
