Like all small businesses I've collected unsalable inventory--soiled, damaged, outdated, etc. I understand I can write these off via COGS, but then TurboTax expects I've reduced my inventory by selling the items (and producing an income from them).
How do I write off these items without the expectation that they were sold?
No one could know with any certainty if a larger than normal business deduction would invite enhanced scrutiny by the IRS. However, it is not appropriate to pick and choose what deductions to enter for your business, you should report the loss in devaluation of inventory if that is what happened. If the IRS should inquire about it, just have records available to substantiate the loss.
Yes, the write-off of inventory is handled through the calculation of Cost of Goods Sold by reducing the ending inventory. If you have no income, this adjustment becomes a business loss.
But in a small business, after the usual deductions, won't this sudden large business loss be interpreted as trying to reduce my personal income taxes and trigger an audit?
No one could know with any certainty if a larger than normal business deduction would invite enhanced scrutiny by the IRS. However, it is not appropriate to pick and choose what deductions to enter for your business, you should report the loss in devaluation of inventory if that is what happened. If the IRS should inquire about it, just have records available to substantiate the loss.