Fulfillment/Logistics Trends
Most Read
Most E-mailed
E-mail Article
Print Article
Guest Column: Cut Your Taxes by Using Your Excess Inventory
Your business may be sitting on an important tax deduction and you probably don't even realize it
Your business may be sitting on an important tax deduction and you probably don't even realize it.
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, plus half 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 inventory before negotiating with a liquidator, however, to be able to justify the product's fair market value with the IRS.
Besides the tax deduction, there are many other great benefits of donating your excess inventory:
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, plus half 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 inventory before negotiating with a liquidator, however, to be able to justify the product's fair market value with the IRS.
Besides the tax deduction, there are many other great benefits of donating your excess inventory:
- Free up needed warehouse space. Whether you own your warehouse or are renting space, storing product can be expensive. Insurance, utilities, labor, and shrinkage all factor in. It doesn't pay to hold stagnant inventory that isn't earning its keep.
- Put your marketing focus where it should be: on your top sellers. Nonmoving inventory can consume a disproportionate amount of money, time and effort to clear it. By donating those items to charity, your business can put your advertising and promotional dollars where they'll do the most good, on your star performers.
- Avoid problems involved with liquidating those overstocks. Liquidators tend to pick and choose. They may not want to buy all of your nonmovers, leaving you with the problem of what to do with the leftovers. Donating can often clear all of your problem products at once.
- Help deserving schools and nonprofit organizations. This good deed can translate into good will. You might ask the recipient group to call the local newspaper to publicize the donation.
RSS Feeds
