Yes, you can write off products you give away, but only at what they cost you to make, not their retail price. The tempting number is the retail price: a $28 candle handed to an influencer feels like a $28 write-off. And for samples and giveaways, if your business keeps inventory, you have almost certainly deducted that cost already, without doing anything.
Here is why. On Schedule C, cost of goods sold is beginning inventory plus purchases, materials and other production costs, minus ending inventory (IRS Publication 334 (opens in new tab)). A candle that leaves your shelf without being sold isn't in your ending inventory anymore, so its wax, wick, jar and fragrance are already inside cost of goods sold. Claiming it again as a separate expense would deduct the same cost twice.
Can you write off giveaways? The short answer
The short answer:
- You deduct cost, not retail. Materials and other costs you actually paid. Your own unpaid hours are not a cost you incurred, so they add nothing.
- Giveaways and samples: the cost is already in cost of goods sold. Some sellers show it on the Advertising line instead, but you only deduct it once.
- Business gifts to a person: deduction capped at $25 per recipient per year (IRS Publication 463 (opens in new tab)).
- Donations to a charity: a separate rule applies, and for a sole proprietor it goes on Schedule A, not Schedule C (IRS Publication 526 (opens in new tab)).
Which rule covers what you gave away
The answer depends on who received the item and why. Four situations cover almost everything a maker gives away.
Samples, influencer boxes, contest prizes, market freebies? These are promotion, not gifts or charity. Because the stock is gone, its cost has already dropped out of ending inventory and into cost of goods sold. Some sellers prefer to show that cost on the Advertising line instead, since advertising is a deductible business expense under Publication 334 (opens in new tab). That is a reclassification. The cost moves from Part III to Part II and does not grow. In Ardent Seller's Schedule C report, a giveaway recorded as a write-off with the Advertising tax category is moved exactly that way: it is added to Line 8 and subtracted from cost of goods sold.
A thank-you gift to a wholesale buyer or shop owner? Publication 463 (opens in new tab) is blunt: "You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year." Incidental costs such as packaging, insuring and mailing generally do not count toward the $25. A gift to a company meant for a particular person counts as a gift to that person. Hand a boutique owner a gift set that cost you $60, and more than half of it goes undeducted. If that set came off your own shelf, its full cost has already run through cost of goods sold, so ask your preparer how to handle the part above $25.
A donation to a charity? Publication 526 (opens in new tab) has a specific inventory rule, and it turns on when you made the item:
- Made and donated in the same year: the item was never in your opening inventory, so its basis for the charitable deduction is zero and there is no charitable deduction. That is not a loss. Publication 526 says to "treat the inventory's cost as you would ordinarily treat it under your method of accounting," which means it stays in cost of goods sold, where you already got it.
- Made in an earlier year and still on the shelf at January 1: the charitable deduction is the smaller of fair market value or your basis, which for a maker is almost always the cost. You must also take that amount out of opening inventory so it is not counted in cost of goods sold as well.
The catch with that second case is where the deduction goes. Publication 526 says that to deduct a charitable contribution you generally must itemize on Schedule A. The new deduction for non-itemizers that starts in tax year 2026 covers up to $1,000 ($2,000 filing jointly) of cash contributions (IRS Topic 506 (opens in new tab)), not donated products. If you take the standard deduction and plan to donate old stock, ask your preparer how they want it handled before you file.
Food to a food bank? Food makers get a special rule. When you donate "apparently wholesome food" to a qualified organization that uses it only to care for the ill, the needy, or infants, and the organization gives you a written statement that it will follow those conditions, Publication 526 (opens in new tab)'s Worksheet 1 can put the deduction above cost. The maximum is basis plus half the markup, capped at twice basis and at 15% of net income from the businesses the food came from. The worksheet starts from the same basis as any other inventory donation, so food made and donated in the same year may get nothing extra. One exception: if you don't account for inventories under section 471 and aren't required to capitalize indirect costs under section 263A, Publication 526 lets you elect to treat the food's basis as 25% of its fair market value on line 2 of the worksheet. Run it with your preparer before you count on it. A fundraiser that resells your donated food does not qualify, because the organization can't transfer the food for money.
What to keep so the number holds up
The deduction is only as good as the record behind it. For every item that leaves without a sale, keep four things: the date, what it was, who got it, and what it cost you. Retail price is useful for a charity's receipt, but it is not your deduction.
Donations carry paperwork of their own. To deduct any single contribution of $250 or more you need a written acknowledgment from the charity (Topic 506 (opens in new tab)). Once your total noncash deduction for the year is over $500, you also file Form 8283 (Publication 526 (opens in new tab)).
A notebook can hold all of this. It gets hard in December, when you have to rebuild a year of freebies from memory and price each one at a cost you worked out months ago. Ardent Seller tracks giveaways and donations as part of normal stock tracking. A giveaway is logged as a write-off with a tax category, so it leaves inventory at its recorded cost. A donation is logged against a charity contact, and the Donations report lists the year's donations with the charity for each and the year's total cost basis. The Schedule C report then puts each cost on one line only. That cost basis is your records total, not your charitable deduction: if you deduct older stock on Schedule A, your preparer also removes the deducted amount from opening inventory.
If you give away more than a handful of pieces a year, start logging them at cost now. By tax time the total will already be there, instead of needing a stack of old receipts to rebuild it.
Related reading
- COGS Explained for Makers — The beginning-plus-purchases-minus-ending formula that already absorbs every item you give away.
- Year-End Inventory Count for Taxes — The December count that sets ending inventory, and so decides how much of your giveaways' cost lands in this year.
- Hobby vs. Business: Taxes and Record-Keeping — None of these deductions exist until the IRS treats your shop as a business.
Free resources
One free download that pairs with this post:
- Small Business Tax Deduction Cheat Sheet — Every Schedule C line on one page, so you can see where Advertising and cost of goods sold sit before deciding which one shows your giveaways.
This article is provided for educational purposes only and does not constitute legal, tax, or accounting advice. Tax laws, deductions, and charitable-contribution rules vary by situation and change frequently. Consult a qualified CPA, tax preparer, or attorney before making decisions that affect your business.