How do I mark items as recycled, so they go out of stock?

Firstly, make sure your items have an Intended Final Action set. Normally this comes through from the Contract or Inbound Order, but this can be set directly on the items list, as below

Now, to mark the recycling as completed and mark them out of stock, we move the items to the "Recycled" virtual stock location

On the Actions menu, select the Change Item(s) Location or Package option

Then on the Change Item Location screen, select the "Recycled" virtual location

And you can change the Processing Status to Completed

Then press the Change Items Location button

The items will now no longer be shown as In Warehouse, and their Location will show as the Recycled virtual location.