Optimize your 2021 taxes by donating excess inventory
With supply chain bottlenecks and semiconductor shortages, you may be surprised to learn that some companies were facing warehouses full of excess inventory.
If yours is one of them, don't carry that inventory in 2022. Instead, put it toward an in-kind donation that will not only support a nonprofit but also reduce your 2021 tax burden.
For example, sanitizing supplies were in great demand early in the pandemic, so companies stocked up. Current demand remains higher than it was before the pandemic, but manufacturers that ramped up production and retailers that filled their shelves are saddled with excess inventory.
But when you think about the hurricanes, floods and wildfires that have plagued our fellow Americans this year, it's clear that excess inventory is much needed in many areas of the country - not only sanitizing supplies but other nonperishables such as clothing, janitorial supplies, school supplies, personal and baby-care items, even waterproof cell phone bags.
The good news: There's a smart, easy way to turn that slow moving inventory into a hefty asset. It's called product philanthropy. And for C Corporations, it's one of the best kept secrets of the IRS tax code.
How gifts-in-kind work
When you donate your company's stock to a gifts-in-kind organization, you don't have to waste valuable staff time identifying deserving charities. Gifts-in-kind organizations are 501(c)(3) nonprofits that collect corporate product donations and then turn them over to qualified nonprofits. Basically, they do the legwork for you.
Be sure that the gifts-in-kind organization you choose, like www.NAEIR.org, is a registered 501(c)(3) with a clean Better Business Bureau record and Form 990 filings as required by the IRS.
A gifts-in-kind organization should make it easy for you. You should expect that it will accept 100% your overstocks, whether it's a truckload or a few cartons, at any time of the year. Of course, you should also expect your gifts-in-kind organization to give you a full accounting of your donations and who received them.
Giving in-kind is a win-win
Your in-kind donations not only benefit nonprofits, they also can help your bottom line.
Section 170(e)(3) if the Internal Revenue Code states that when C Corps donate their inventory to qualified nonprofits, they don't just receive a tax deduction: they can receive a tax deduction equal to up to twice the cost of the donated products.
Under the tax code, 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 costs $10 and you sell it in store for $30, the difference is $20. Half of $20 is $10. So, $10 (product cost) plus $10 (half the difference) equals a $20 deduction. As $20 does not exceed twice the product cost, it is an allowable deduction. It's that simple.
Charitable groups receiving donated product must abide by the guidelines outlined in IRC section 170(e)(3), which states that the merchandise must go to care for the ill, needy or minors. They also may not barter, trade or sell the donated items, thereby protecting the quality of your brand identity.
• Gary C. Smith is president of the nonprofit National Association for the Exchange of Industrial Resources (NAEIR) is the oldest and largest gifts-in-kind organization in the U.S. NAEIR receives donations of excess inventory from American corporations and distributes the material to a membership base of more than 80,000 charities. It has collected and redistributed more than $3 billion worth of new, donated supplies and equipment since its founding in 1977. On average, NAEIR members acquire more than $18,000 worth of free products per year for their organizations. For more information about NAEIR, visit www.naeir.org or call (800) 562-0955.