October 2015 | Commentary | Viewpoint

Product Philanthropy: An Efficient Way to Move Unwanted Inventory

Tags: Inventory Management

While businesses have made great strides in inventory management, many have yet to adopt a truly efficient, cost-effective process for moving unprofitable stock.

Discounting merchandise eats into profits and devalues the corporate brand. Liquidating is even less profitable and more laborious. As a result, many otherwise efficient operations end up housing idle stock far longer than they should, tying up valuable warehouse space.

Excess inventory is a common problem that, fortunately, contains its own best solution. It's called product philanthropy—donating unwanted products to charity. Done right, product philanthropy requires minimal time and labor, yet generates solid returns.

Yes, It's Tax Deductible

Under Section 170(e)(3) of the U.S. Internal Revenue Code, businesses can earn a significant tax deduction for gifts-in-kind donations. The IRS Code states that regular C corporations may deduct the cost of the inventory donated, plus half the difference between cost and fair market value, not to exceed twice the cost.

For example, if a product costs $10 and you sell it for $30, the difference is $20. Half of $20 is $10. Add the $10 product cost and the $10 difference, and your deduction equals $20. Because $20 does not exceed twice the product cost, a $20 deduction is yours.

Multiply that by all your unwanted stock, and the tax benefits add up.

Minimal Labor for You

When you funnel your donations to a gifts-in-kind organization, it gets even better, because the process requires little on your part. Gifts-in-kind organizations are nonprofits that collect product donations, then distribute them to qualified nonprofits that, in turn, give them to people in need.

Once you become a member of an organization's donor network, it's an easy process for you. Typically, applying for membership is as simple as completing a form. Then, once you're a member, you can make donations at any time.

Submit for approval a list of the inventory you'd like to donate. Once it's approved, ship the stock to a designated location. From there, the gifts-in-kind organization takes over, sorting, cataloging, and making those products available to its member charities.

You'll receive tax documentation for your records. And after the products are donated, you'll learn the names of the charities that benefited from them.

Product philanthropy via gifts-in-kind organizations gives you an efficient, repeatable workflow for disposing of unwanted inventory. You'll be able to predict how much time and effort it will require of your workforce. You can calculate the financial gain in advance. These are advantages you rarely enjoy when discounting and liquidating merchandise.

And there are other benefits, too:

  • Get down to just-in-time inventory. Donating non-moving product clears it out quickly.
  • Focus on top sellers. Eliminating stagnant inventory lets you concentrate on money makers, not money losers.
  • Avoid liquidation headaches. Liquidators tend to pick and choose, leaving you with the problem of leftovers. Donating often clears out all your problem products—outdated supplies, slow-selling SKUs, unsuccessful new products, discontinued models—at once.

    Product philanthropy makes it easy for you to not only clear your warehouse quickly and cost-effectively, but also to put those products into the hands of people in need.






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