Don’t spend money storing your slow-selling or returned merchandise. You could be using that to market more profitable products. Donating your excess inventory to NAEIR can give you an income tax deduction, clear out your warehouse and save your company’s bottom line.
The deduction lies in your excess, overstock inventory. By donating that nonmoving merchandise to charity, your company can earn a federal income tax deduction under Section 170 (e)(3) of the U.S. Internal Revenue Code.
The IRS Code says that regular (C) corporations may deduct the cost of the inventory donated,plushalf the difference between cost and fair market value. Deductions may be up to twice cost.
For example, your business (a C corporation) sells a product for which it pays $1. Retail price is $2. Your deduction is $1.50. If you pay $1 and that item sells for $4, your deduction is $2 (limit of twice cost).
S corporations, partnerships and sole proprietorships qualify for a straight cost deduction.
Even if your business realizes only a straight cost deduction, it may be to your advantage to donate your stagnant merchandise rather than clear it through a liquidator. Since a liquidator looks for the lowest price they can get, their offer may be less than your cost - substantially less. When you are faced with the choice of liquidating this merchandise, dumping it and writing it off as a loss, or donating it and taking a straight cost deduction, donating may be the preferable choice.
Investigate donating inventorybeforenegotiating with a liquidator, however, to be able to justify the product’s fair market value with the IRS.
What Are The Benefits?Besides the tax deduction, there are many other great benefits of donating your excess inventory:
What Should Your Company Donate?Once you‘ve decided that donating inventory might be a smart move for your business, how do you identify which merchandise to clear? Here are some types of products to consider:
How To Earn This DeductionTo earn this deduction, companies must donate to a public or private school, and in the case of nonprofit organizations, make sure that the nonprofit is a 501 (c)(3), since only that IRS classification of nonprofits qualifies as recipients.
You should have your accountant or tax adviser instruct the recipient group as to what information they need to include in the documentation they furnish you as proof of the donation. You will have to include the recipient’s letter on your corporate tax forms as support for claiming the deduction.
If your business has a small quantity of merchandise to donate, you will need to select the recipient(s) carefully to avoid the appearance of favoritism. By the same token, if you have a large quantity of product (a semi-trailer or more), you will have to instruct the recipient groups that under IRS regulations, donated merchandise may not be bartered, traded or sold. Charities or schools maynotauction or sell donated merchandise to raise cash.
NAEIR Can HelpTo avoid having to deal with all of these issues, using a gifts-in-kind organization, such as NAEIR, may be the best solution.
Over 7,000 large corporations have donated over $2 billion in inventory to theNational Association for the Exchange of Industrial Resourcessince it’s founding in 1977. NAEIR accepts donations of new, overstock merchandise, and then provides the proper tax documentation. The donated goods are redistributed to more than 13,000 qualified schools and nonprofit organizations nationwide.
The donation process is simple. To begin, a company sends in a written proposal or list of product they want to donate, including a short description, quantities and a value. NAEIR has a committee that reviews and approves proposals within 72 hours.
NAEIR notifies the donor and then sends shipping instructions and labels. Although the donor company is responsible for the shipping cost, that is also a tax-deductible expense of the donation process. NAEIR’s Traffic Department can provide reduced rates for shipping.
Your donation will be redistributed to groups such as elementary and high schools, YMCAs/YWCAs, community centers, rescue missions, shelters for abused women and children, hospitals, nursing homes, churches of all denominations, and many other social service agencies.
There is no cost to corporations for NAEIR’s service. For a free Donation Information Kit, please contact NAEIR’s Corporate Relations Department at1-800-562-0955or firstname.lastname@example.org.