Don’t Discount It, Donate It: The Smart Way To Move Unwanted Inventory

Discounting low-demand products eats into profits and devalues their brands, and liquidation is even worse. Many companies are unaware that they have another option that requires minimal labor yet generates significant returns — charitable donation.

Savvy industrial distributors are continuously searching for ways to improve the efficiency of their warehouse operations. While automated tracking systems have vastly improved inventory management, identifying the best way to move unprofitable stock remains an ongoing challenge.

When companies discount their products, it eats into profits and devalues their brand. When they liquidate it, it’s even worse. Many managers balk at investing hours of labor to essentially recover pennies on the dollar, which is why too many companies hold onto unwanted inventory far longer than they should.

Many companies are unaware that they have another option, one that requires minimal labor yet generates significant returns. It’s called product philanthropy — i.e., donating unwanted stock to charity. And for companies using gifts-in-kind organizations to distribute their donations, it’s a quick, painless way to clear out unprofitable inventory, while creating a hefty tax deduction.

How Gifts-in-Kind Organizations Work

A gifts-in-kind organization is a nonprofit that collects corporate product donations and then disperses them to pre-screened, qualified nonprofits that want them. Your staff doesn’t have to spend time identifying appropriate charities; the gifts-in-kind organization has already done the legwork.

A gifts-in-kind organization has both a network of corporate donors and network of member charities. Once you become a recognized donor, you can contact your gifts-in-kind organization whenever you want to dispose of inventory.

Maybe you’re consolidating your warehouse. Maybe you need to move last season’s product off the shelves quickly. Companies find all kinds of ways to leverage their gifts-in-kind relationship, from moving and closing warehouses to expediting post-holiday product returns. 

Understanding The Tax Benefits

You know that donations made to qualified charities are tax deductible. But you may not know that, if your organization is a C Corp, you can receive a federal tax deduction equal to up to twice the cost of the donated products, according to IRC Section 170(e)(3).

It may sound too good to be true, but it’s real. 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.) 

Chances are, this is a much better deal than what your company receives when moving inventory via online auctions and liquidation agents, without the hassle and haggling.   

Beyond The Bottom Line

In addition to saving time and labor and maximizing your tax deduction, product philanthropy offers additional benefits. You’ll also: 

  • Protect your brand: Having discounted inventory in the market devalues your products and your brand. But when you donate it, the opposite happens. You elevate your corporate image by creating good will.
  • Fulfill your social mission: If your core values include giving back to those less fortunate, this gets you closer to meeting your philanthropy goals. Gifts-in-kind organizations distribute the products to qualified charities, who in turn distribute them to people in need. 
  • Improve morale: Employees like working for companies with a heart. If you have an employee giving or volunteer program, this is a great way to inspire your workforce, while putting your money where your mouth is. 

How To Get Started

There are multiple gifts-in-kind organizations operating in the U.S. Choose one that’s easy to deal with and will ensure that your products reach worthy charities. Look for one that:

  • Can tell you exactly what type of charities they serve
  • Accepts a wide range of merchandise (i.e., yours)
  • Accepts large and small donations
  • Offers a fast, streamlined donation process
  • Will provide you with detailed records of what you donated and who received it
  • Does not charge fees to corporate donors

Once you identify the organization you want to work with, establishing a relationship typically comes down to completing some basic paperwork. 

Then, whenever you are ready to make a donation, you create a list of the inventory you wish to donate. Once it’s approved by your gifts-in-kind organization, you ship it to their designated location, where workers will sort it, catalog it and make it available to its member charities.

At that time, the organization will send you proper tax documentation. Once the products have been donated, you’ll be provided with additional documentation identifying the specific charities that received it.

It’s that easy. Best of all, going forward, your company has a simple, repeatable work process for disposing of unwanted inventory.  

The Sooner, The Better

Now is a great time to align your company with a gifts-in-kind organization. The sooner you start donating inventory, the larger this year’s tax deduction will be.

In addition, you will better position your warehouse to operate more profitably and productively. The sooner you clear your shelves, the sooner you free up space for higher performing products. You may even make life easier for your pickers, speeding order fulfillment and raising customer satisfaction.  

And last but not least, you’ll be putting your unwanted products into the hands of those who really need them. Those items you resent for cluttering your warehouse has the power to make a difference in someone’s life.

Gary C. Smith is president and CEO of the National Association for the Exchange of Industrial Resources (NAEIR), the largest gifts-in-kind organization in the U.S.


This article originally appeared in the July/August print edition of Industrial Distribution. Click here to view the full digital edition.

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