Out with the Old, In with the Tax Deduction
Donating Unwanted Inventory at Year End Can Yield Big Tax Benefits
If yours is like many companies, you’ve got pallets of excess inventory taking up valuable warehouse space and putting a drag on your bottom line.
The good news is, there’s a smart, easy way to turn that slow moving inventory into a hefty asset. One that doesn’t involve profit-devouring discounts or liquidation hassles. It’s called product philanthropy. And for C Corporations, it’s one of the best kept secrets of the IRS tax code.
According to IRC Section 170(e)(3), when C Corps donate their inventory to qualified nonprofits, they can receive a federal tax deduction equal to up to twice the cost of the donated products.
And when companies donate their stock-in-trade to a gifts-in-kind organization, they don’t have to waste valuable staff time identifying deserving charities. Gifts-in-kind organizations are nonprofits that collect corporate product donations and then turn them over to qualified nonprofits. Basically, they do the legwork for you. Think a twice cost tax deduction sounds too good to be true? It’s the real deal. Here’s the formula:
Deductions are equal to the cost of the inventory donated, plus half the difference between the cost and fair market-selling price, not to exceed twice the cost.
For example, if your product cost $10 and you sell it for $30, the difference is $20. Half of $20 is $10. So: $10 Product Cost + $10 Half the Difference = $20 Deduction ($20 does not exceed twice the product cost, so it is does not exceed the maximum allowable deduction.)
Chances are, this is a much better deal than what your company receives when moving inventory via online auctions and liquidation agents.
Not to mention the fact that while those strategies can devalue your brand, donating to charity only elevates it.
Best of all, with product philanthropy, your company is actively helping those in need. If social responsibility is part of your mission statement, this is a win/win method of fulfilling that promise.
You can donate your excess inventory and realize a tax deduction. Since a variety of items are always in great demand, your donation will be greatly appreciated and quickly be put to good use.