Where do I write off Obsolete Inventory which I have either trashed or donated ? Thank you.

[eagleness54]

Does it get deducted from the Purchased Inventory for the year or or somewhere else?

[IsabellaG · Accepted solution]

Inventory that you have either trashed or donated will be reflected in a lower Ending Inventory, which will increase your Cost of Goods Sold. The calculation is:

Beginning Inventory + Purchases - Ending Inventory (which will be lower because the obsolete inventory is gone) = Cost of Goods Sold.

This calculation is accomplished on two screens: 

1. Report the value of your inventory
2. Let's get the cost of your goods.

[eagleness54]

So I basically just deduct the amount from the ending inventory figure?   I'm confused.

[IsabellaG]

Yes, exactly. It's not in your inventory any more because you got rid of it. So it decreases your inventory and increases your deduction for Cost of Goods Sold.

[eagleness54]

Okay, it is beginning to make sense, however, I track my actual COGS, for each item I sell, so I already know that number, but you are saying that will need to change by adding in the amount I'm disposing of.

[IsabellaG]

Yes, because of the way COGS is calculated. If you see the screenshots that follow my answer, make sure that the "End of 2017" box is  reduced by the cost of those items.

[eagleness54]

Okay, thank you.   I tried to keep very good records of those items and thought that there would be a specific line for that as a contra account write off.   Thanks again for your help.  Appreciate it.

[IsabellaG]

You're welcome!

[MichelleT]

I'm guessing you  this is for business you own.

[eagleness54]

Yes and business did not close.

[rjparish14]

Thank you for this simple explanation.

[Downbound Steve]

I was under the impression that the rules for a sole proprietor to write off inventory was not as simple as just reporting a lower inventory for cost of goods sold. I was under the impression that a sole proprietor would not be able to take that loss on the schedule C. Does anyone have any advice?

[RobertG]

If you contribute inventory (property you sell in the course of your business), the amount you can deduct is the smaller of its fair market value on the day you contributed it or its basis. The basis of contributed inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. You must remove the amount of your charitable contribution deduction from your opening inventory. It isn't part of the cost of goods sold.

If the cost of donated inventory isn't included in your opening inventory, the inventory's basis is zero and you can't claim a charitable contribution deduction. Treat the inventory's cost as you would ordinarily treat it under your method of accounting. For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year.

IRS Publication 526

@Downbound Steve

[Downbound Steve]

Robert,

OK, say my inventory was 10,000 at the beginning of 2020. I enter 0 for end of 2020. Then the next screen asks how much of this amount was removed for personal use.  I assume I enter the full 10,000.  Is there anything else I need to do on Turbo Tax before I enter the 10,000 donation I made to the registered charity in late 2020? 

[MarilynG1]

No, you indicated that you withdrew the inventory 'for personal use'.

When you claim your Charitable Contribution, use the lower of FMV or Basis for your donated inventory. 

Click this link for more info on Donated Inventory.