Can I write off unsold inventory this way?

[junhuayq]

I have a small retail business. I have some unsold products that are several years old; I wonder whether I can write them off by offering it free (BOGO) to customers who purchase my other products. For example, if a customer purchased 5 products, I would offer 5 unsold products to the customer. For the tax return, can I deduct the cost of all the materials I gave away with FMV? Is this a good way to write off the unsold inventory in comparison with others? Thanks.

[AdamNe]

Hello @junhuayq ,

Thanks for the question! 

In general, you are right on. Your "Cost of Goods Sold" is calculated in part by taking your beginning inventory, adding purchases, and subtracting your ending inventory. So, if you sell off more inventory, your ending inventory will be lower, thus increasing your Cost of Goods Sold. Cost of Goods Sold is then a direct subtraction from your business income. 

I hope that helps you! 

All my best,

Adam, EA

TurboTax Live Expert

[junhuayq]

Thanks for the answer. Is there any pitfall for this BOGO method to write off unsold inventory? It's a fabric business. Thank you.

[junhuayq]

I feel this method is better than donation, because the BOGO may lead to more sales, while donation won't translate into more sales. Thanks.

[AdamNe]

Hello again @junhuayq !

Any potential pitfalls would not be tax related. You would want to consider if it might be possible to sell the inventory, even at a lower price, to increase revenue, but that is more a business decision than a tax decision. 

Thanks again! 

Adam