Donating Inventory
Sometimes you may find yourself with inventory that isn’t selling, so you think about donating it in the hopes of writing it off. The question is – can you write off inventory donations? And if so, how?
The good news and the bad news
The good news is: yes, you are permitted to donate unsold inventory. According to the IRS:
How much you can deduct
“the amount you can deduct is the smaller of its FMV on the day you contributed it or its basis”
FMV means “fair market value”, as in, what you could sell the item for. And basis is your full loaded cost for that item.
The bad news, at least for Schedule-C filers, is that you do not get to just write the donations off as part of cost of goods sold. From that same IRS publications:
How to classify donations
“You must remove the amount of your charitable contribution deduction from your opening inventory. It isn’t part of the cost of goods sold.”
What this is basically saying is that, instead of adding those donated items to your cost of goods sold total, you need to remove them from your inventory, then deduct the value of those items on Schedule A of your personal tax return.
Handling Inventory Donations in Seller Ledger
Fortunately, Seller Ledger allows you to remove donated items from inventory. When you click the “Remove stock”, simply choose the “Remove for personal use” option.
This remove those items from your inventory without adding them to cost of goods sold. Instead, they will be treated as a “Not for business” expense.