---
title: "Can resellers deduct donated or unsold inventory?"
description: "Donated inventory's deduction is the smaller of value or basis. Stock bought and donated in one year has zero basis, so its cost stays in cost of goods sold."
canonical: https://resellerindex.com/tax/irs/donating-unsold-inventory/
last_updated: 2026-10-23
publisher: "The Reseller Index"
---

# Can a reseller deduct inventory they donate, toss or can't sell?

**For inventory you donate, Publication 334 says the charitable deduction is the smaller of the item's fair market value or its basis, and if the item's cost isn't in your opening inventory, as when you buy and donate it in the same year, its basis is zero and there's no charitable deduction.** In that case its cost is treated as it ordinarily would be under your accounting method, such as staying in cost of goods sold, and goods you can't sell at normal prices are valued at their bona fide selling price minus the direct cost of disposition.

General information from IRS sources, not tax advice. It doesn't say what you should file; check with a tax professional about your own situation.

Checked against the IRS pages listed below on Oct 19, 2026.

## What the IRS says

> "…the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis."

[Publication 334 (2025), Tax Guide for Small Business](https://www.irs.gov/publications/p334), Line 35: Donation of inventory; page reviewed or updated Apr 30, 2026.

> "If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you can't claim a charitable contribution deduction."

[Publication 334 (2025), Tax Guide for Small Business](https://www.irs.gov/publications/p334), Line 35: Donation of inventory; page reviewed or updated Apr 30, 2026.

> "You must remove the amount of your contribution deduction from your opening inventory. It is not part of the cost of goods sold."

[Publication 334 (2025), Tax Guide for Small Business](https://www.irs.gov/publications/p334), Line 35: Donation of inventory; page reviewed or updated Apr 30, 2026.

> "You should value these goods at their bona fide selling price minus direct cost of disposition, no matter which method you use to value the rest of your inventory."

[Publication 538 (01/2022), Accounting Periods and Methods](https://www.irs.gov/publications/p538), Valuing Inventory: Goods that cannot be sold; page reviewed or updated Apr 30, 2026.

## Two cases, depending on when you bought it

*From Publication 334 (2025), chapter 6, Donation of inventory. Publication 334 writes these rules for sellers who keep an inventory.*

| When you bought the donated item | Charitable deduction | What happens to its cost |
| --- | --- | --- |
| In an earlier year (its cost is in this year's opening inventory) | The smaller of fair market value on the day you gave it or its basis | Remove the deduction amount from opening inventory; it isn't part of cost of goods sold |
| In the same year you donated it | None: the basis is zero | Treated as it ordinarily would be under your method; Publication 334's example keeps it in that year's cost of goods sold |

## Where a charitable deduction goes

Not on Schedule C: the Schedule C instructions for other expenses say not to include charitable contributions.

For 2026, Form 1040-ES describes two changes. If you itemize, only charitable contributions above 0.5% of adjusted gross income are deductible. If you don't itemize, a new deduction of up to $1,000 ($2,000 married filing jointly) is for cash contributions to eligible tax-exempt organizations.

## Stock you can't sell, or throw away

Publication 538 says goods you can't sell at normal prices because of damage, imperfections, shop wear, changes of style, odd or broken lots or similar causes are valued at their bona fide selling price minus the direct cost of disposition, whatever method you use for the rest of your inventory.

If you keep an inventory, an item you throw away simply isn't in closing inventory. Because cost of goods sold is the goods available for sale minus closing inventory, its cost ends up in cost of goods sold without a separate deduction.

## Stolen or destroyed stock

Publication 538 lets a casualty or theft loss of inventory be claimed through cost of goods sold or as a separate casualty or theft loss, but not both, and the two routes treat insurance money differently: see [cost of goods sold](https://resellerindex.com/tax/irs/cost-of-goods-sold-for-resellers/).

## Worked examples

### Bought and donated in the same year

In 2026 you buy 50 books for $100, or $2.00 each, sell 30 and give the other 20 to a library sale in November. The 20 books' $40 cost isn't in your opening inventory, so their basis for a charitable deduction is zero and there is no contribution deduction. The $40 stays in purchases and, since the books aren't in closing inventory, in cost of goods sold.

### Donating last year's stock

Thirty DVDs were in your December 31, 2025 closing inventory at $1.50 each, $45 in all. You donate them in 2026 when they're worth $90. The contribution deduction is limited to the smaller of $90 or the $45 basis, so $45, and the $45 comes out of 2026 opening inventory.

### A water-damaged lot

Twelve books that cost $36 are damaged and would sell for $1.00 each to a bulk buyer with no cost to dispose of them. Under Publication 538 they are valued at $12, the bona fide selling price minus the direct cost of disposition.

## Edge cases

- Publication 334's own example for the earlier-year case uses an accrual-method seller: an item with $600 fair market value and $400 of cost in the prior closing inventory gives a $400 contribution deduction.
- Because charitable contributions aren't Schedule C expenses, they don't reduce the Schedule C net profit that self-employment tax is figured from.
- Publication 334 notes a special rule may apply to certain donations of food inventory, covered in Publication 526.
- These rules are written for sellers who keep an inventory. How they apply under the materials-and-supplies method is a question for a tax professional.

## What to do

1. Log each donation: date, recipient, items, your cost and their value.
2. Note the year each donated item was bought, since that decides which case applies.
3. Keep the charity's acknowledgment with your records.
4. Check with a tax professional before claiming a deduction for donated inventory.

## Questions

### Can I deduct the full resale value of donated inventory?

No. Publication 334 limits the contribution deduction to the smaller of fair market value or basis, and the basis is zero if the item's cost isn't in your opening inventory.

### I bought and donated in the same year. Do I lose the cost?

Not the cost. Publication 334 says to treat it as you ordinarily would under your method, such as including the purchase price in that year's cost of goods sold. You just don't get a charitable deduction on top.

### Can I deduct inventory that never sold?

Not as a separate deduction while you still hold it: it stays in closing inventory. Goods that can't be sold at normal prices are valued at their bona fide selling price minus the direct cost of disposition.

## Related questions

- [How does cost of goods sold work for items you resell?](https://resellerindex.com/tax/irs/cost-of-goods-sold-for-resellers/)
- [Do small resellers have to keep an inventory for taxes?](https://resellerindex.com/tax/irs/do-small-resellers-have-to-keep-inventory/)
- [What records should a reseller keep for the IRS?](https://resellerindex.com/tax/irs/what-records-should-a-reseller-keep/)
- [Form 1099-K for resellers: the $20,000, 200-transaction test](https://resellerindex.com/guides/1099-k-for-resellers/)
- [State rules: marketplace sales tax and state 1099-K thresholds](https://resellerindex.com/tax/states/)
- [All federal tax answers for resellers](https://resellerindex.com/tax/irs/)

## General information, not tax advice

This page summarizes IRS publications, instructions and guidance as read on Oct 19, 2026. It doesn't say what you should file or deduct. Tax rules depend on your facts, and state rules aren't covered here (see [state rules](https://resellerindex.com/tax/states/)). Check with a tax professional.

## Sources

Every figure, rule and quote on this page comes from one of these official pages.

- [Publication 334 (2025), Tax Guide for Small Business](https://www.irs.gov/publications/p334) (IRS, page reviewed or updated Apr 30, 2026; read Oct 19, 2026)
- [Publication 538 (01/2022), Accounting Periods and Methods](https://www.irs.gov/publications/p538) (IRS, page reviewed or updated Apr 30, 2026; read Oct 19, 2026)
- [Instructions for Schedule C (Form 1040) (2025)](https://www.irs.gov/instructions/i1040sc) (IRS, page reviewed or updated Apr 30, 2026; read Oct 19, 2026)
- [Form 1040-ES (2026), Estimated Tax for Individuals](https://www.irs.gov/pub/irs-pdf/f1040es.pdf) (IRS, dated Feb 12, 2026; read Oct 19, 2026)

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