Around year end this gets framed as a choice: write the inventory off, or sell it. It isn't really a choice, because the two things do different jobs, and treating them as alternatives is how companies end up with a cleaner balance sheet and the same pallets in the same racks.
One note before anything else: this is general commercial background, not tax advice. Treatment varies by entity type, jurisdiction, and your own circumstances. Talk to your accountant before acting on any of it.
They're Not Alternatives
A write-down adjusts the carrying value of inventory on your books. A sale converts that inventory into cash and removes it from your building. You can do one, the other, or both — and the write-down alone changes nothing physical.
Writing inventory down to zero doesn't make it disappear. It just stops you paying attention to something you're still paying to store.
What a Write-Down Does
Reducing carrying value recognises a loss that already happened economically. It brings the books closer to reality and generally reduces taxable income in that period, which is why it clusters around year end.
What it does not do:
- Recover any cash
- Free any warehouse space
- Stop storage, insurance, handling, or counting costs
- Prevent the goods aging further
Written-down inventory that stays in the building is arguably worse than before, because it's now invisible in the numbers while still consuming space and attention. Documentation matters here too — counts, valuation, and evidence of obsolescence — and that's exactly the kind of thing your accountant will want to see.
What Selling Does
A sale produces cash, empties the space, ends the carrying cost, and puts a defensible market price on the goods. That last point is underrated: an arm's-length sale is concrete evidence of what the inventory was actually worth, which is a cleaner basis than an internal estimate.
The recovery will be below book value — see how to value excess inventory — but the comparison that matters isn't sale price against book value. It's sale price against another year of carrying cost plus further aging. Carrying cost commonly runs 20–30% of inventory value annually, and the goods are worth less at the end of that year than at the start.
The Donation Option
Donating obsolete inventory to a qualifying charity can produce a deduction, and in some circumstances an enhanced one where goods go to care for the needy, the ill, or infants. It's a genuine option, particularly for goods with little secondary-market value.
The practical limits: you need a willing recipient able to take the volume, you get no cash, and the rules around what qualifies and how much can be claimed are specific enough that this is firmly accountant territory. For goods with real resale value, a sale usually beats a donation on economics. For goods with none, donation may beat disposal — which costs money.
The Sequence That Usually Works
Most companies land somewhere like this:
- Identify what's genuinely dead versus merely slow. Slow inventory may still sell through normally — see turning dead stock into cash.
- Get a real market number on the dead portion before deciding anything. You can't compare options without it.
- Sell what has value, which converts it to cash and produces documented evidence of the realised price.
- Donate or dispose of what doesn't, with proper documentation.
- Take the accounting treatment your accountant advises on the realised outcome.
The timing point that matters practically: this all takes weeks, not days. Companies that start in December discover that scheduling freight between the holidays is difficult and that everyone else is trying to do the same thing. Starting a quarter early is the single easiest improvement — see year-end inventory clearance.
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Frequently asked questions
Is it better to write off inventory or sell it?
They do different things. A write-down adjusts the books; a sale produces cash and empties the space. Writing down without selling leaves you storing goods that are now invisible in your numbers. Most companies do both, in that order.
Does selling below cost create a tax benefit?
Selling at a loss realises that loss, and an arm's-length sale is strong evidence of actual market value. How that flows through your specific return depends on your entity and circumstances, so confirm the treatment with your accountant.
Should I donate obsolete inventory instead?
It can work, especially for goods with little resale value, and enhanced deductions exist in some circumstances. You need a recipient able to take the volume and you get no cash. For goods with real market value, selling usually wins on economics.
When should I start if I want this done by year end?
A full quarter ahead. The process takes one to two weeks when it runs smoothly, but December freight scheduling is genuinely difficult and every other company is trying to clear at the same time.