Defective business products

[czdday]

We have an online business and found we had quite a few defective products that we had to throw away.  The products cannot be donated or it would be cost prohibitive to return them (from China). Can we take a loss and how do we do that with Turbotax?

[AmyT · Accepted solution]

Yes, you are able to deduct the cost of inventory items that are not suitable for sale.

The following steps will take you to the Expenses section of TurboTax, which is where you will enter the cost of the defective items:

1. Select "Federal Taxes" at the top of the screen
2. Under "Income & Expenses", select SELF-EMPLOYMENT INCOME/EXPENSES (click on Start)
3. Work through an screens about the business information, name, etc.

If you have inventory :

1. When you get to the screen that asks "What kind of expenses did you have for <your business>?", choose the drop-down for "Less common expenses" and select "Inventory"
2. Click "Continue"
3. Select "Yes, I have inventory to report"
4. Select "Yes" to using the Cost Method to value inventory (recommended), or "No" if you use a different methed
5. Enter the value (at cost) of your inventory at the end of the year; click "Continue"
6. Enter the Cost of Purchases and any other expenses or inventory withdrawn for personal use

The above steps will include the cost of the unusuable inventory in Cost of Good Sold on your return.

If you do not have inventory:

1. When you get to the screen that asks "What kind of expenses did you have for <your business>?", choose the drop-down for "Less common expenses" and select "Other miscellaneous expenses"
2. Click "Continue"
3. Scroll down to Expenses; find "Other miscellaneous expenses"; click on the blue Start button
4. Enter a description such as "Defective merchandise" and enter the cost of the merchandise that you had to throw away

NOTE:  Only use one of the above methods for reporting the merchandise you threw away.

[edited 1/17/17 at 9:15 am]