Discounting. Liquidating. Disposing. They’re all ways retailers and manufacturers of personal care items use to get rid of excess inventory. However, they’re all labor-intensive and tend to eat into profits. So what’s a better alternative? Well, thanks to a little-known tax code, it’s donating.
Donating unused stock can earn you up to twice the cost of donated items. With the help of a gifts-in-kind organization, all it takes on your end is to load up the stock and ship it off. It’s called ‘product philanthropy’ and it can help minimize your losses from unsold stock.
Let’s Start With the Basics
IRC Section 170(e) (3) of the tax code states that when C corporations donate their inventory to qualified nonprofits, they receive a tax deduction 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 in store for $30, the difference is $20. Half of $20 is $10. So, $10 (product cost) + $10 (half the difference) = $20 deduction.
The next step is finding an organization that will accept your donation. That’s where a gifts-in-kind organizations, or 501 c3 nonprofits, come in handy. They will take your company’s donation and make it available to member schools and nonprofits while providing you with the paperwork you need to take your tax deduction. It’s that simple.
The Lano Corporation has donated more than $100,000 worth of its cosmetics by using a gifts-in-kind organization. Besides the tax deduction, the company has found other benefits as well.
Company founder, Miranda Coggins, said, “Since we focus on sales to salons and boutiques rather than through large retailers, this is a great way of getting our products into the hands of more people and helping out a good cause at the same time. Personal care items are very welcome donations.”
Donating items protects your brand by keeping your products from becoming devalued through liquidation, while also benefiting retailers, who don’t have to compete with stock that’s being offered at deep discounts. For both retailers and manufacturers, donating unsold stock can help free up warehouse or storage space, making room for new products they can sell for higher profits. Finally, being a philanthropic company can be good for company morale. Employees like working for civic-minded organizations.
The 4-Step Donation Process
- Contact a gifts-in-kind organization. Look for one that doesn’t charge donors a fee (most don’t), accepts a wide range of merchandise, accepts large and small donations and offers a fast, streamlined donation process.
- Wait for your donation to be accepted. Once the organization has signed off on it, you’ll need to ship it to their warehouse or other designated location. The gifts-in-kind organization will then sort and catalogue the merchandise before making it available to member charities.
- Receive tax documentation for your donation.
- Learn what specific charities received your goods.
The next time you have unsold products cluttering store shelves or taking up space in your warehouse—consider donating it. Whether it’s just a few boxes or a whole truckload of items, that one donation can make a huge difference in someone’s life—and in your bottom line.
Gary C. Smith is President and CEO of NAEIR, National Association for the Exchange of Industrial Resources, the largest gifts-in-kind organization in the United States. NAEIR (www.naeir.org) has received donations of excess inventory from more than 8,000 U.S. corporations and redistributed more than $3 billion in products to non-profits and schools. NAEIR can be reached at 800-562-0955