Donating Unwanted Inventory Can Yield Tax Advantages

January 26, 2015
Most companies seem to have excessive pallets of merchandise that is either overstock or past dated. It’s taking up space that could be better used and benefit others.

There is an easy way to rid your organization of that unwanted stock and reap the benefits on many levels. Product philanthropy is aimed at C Corporations yet many of them have never even heard of this section of the 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.

When organizations donate their excess merchandise to a gifts-in-kind organization, their items will find a good home with a deserving charity. Gifts-in-kind organizations are nonprofits that collect corporate product donations and then give them to qualified nonprofits. They facilitate the deal and you and the charity reap the benefits.
A twice cost tax deduction sounds almost too good to be true? But it’s true! 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.)

This is probably a much better arrangement than what your company receives when moving merchandise using an online auction, closeout sale or liquidation agent.

The fact is that while those strategies often can devalue your brand, donating to charity only strengthens it.

The very best part is that with product philanthropy, your business is actively helping the needy.

Because a wide variety of items are appreciated, products from many industries are welcome. So do a nice thing for a deserving charity and for your company, donate your excess inventory.

Contributed to Retail Minded by Gary C. Smith, President and CEO of National Association for the Exchange of Industrial Resources, the largest gifts-in-kind organization in the U.S. NAEIR  has received donations of excess inventory from more than 8,000 U.S. corporations and redistributed more than $3 billion in products to nonprofits and schools. Contact Smith at 800-562-0955.