If you give away product do you deduct it's retail or it's wholesale value?

Question

If I open a bake shop and give away product to attract customers do I deduct it's wholesale value or it's retail value? I mean I would just be losing out on the wholesale cost, but for taxes or projections do I also factor in the lost revenue that I would make from it's retail value?

One is the real cost to put them out there, the other is lost income, so do I list the lost income?

I'm asking from a perspective of doing taxes, as well as for how it would apply to doing business plan projections.

Thanks in advance for your time.

Answer 1

My initial answer wasn't clear. I wanted to change it so it makes more sense. First I will assume that you are in the US.

All the items you buy for your business are expenses. Ingredients included. If you were to give away your product you would not need to deduct anything for taxes as your initial purchase of the ingredients counts as loss.

You will still want to keep track of all your expenses and profits on a balance sheet, but you will not be able to take a second deduction from the product you give away.

Everyone does a balance sheet differently. Just make sure it's clear enough for you, your accountant and your bank to understand.

I would suggest having an internal report showing sales vs giveaways to see if your marketing campaign is effective, but that would really only be for your benefit. To know where the money is going.

Hope that helps!

Answer 2

You don't need to do an entry at all it is accounted for by having a lower ending inventory so you don't make as much profit.
It has the same effect as shoplifting, sales price reductions, spoilage or other reductions of inventory.

Answer 3

I would say factor in everything for the retail value.