Tax Incentives for donating obsolete, closeout or liquidation inventory (Source: IRS.gov):

Congress provides incentives under the tax laws to encourage donation of inventory to non-profit organizations. These laws provide an incentive to businesses for donating slow-moving items prior to marking down the price. By donating items that today are collecting dust on a warehouse floor or a retail outlet shelf, donors can save the cost of other expenses related to maintaining the inventory, including the cost of warehousing, handling, and/or disposing of the items.

Internal Revenue Code, Section 170e3 creates an enhanced deduction for corporationsto take a deduction up to twice the cost of producing an item (when the value is higher than the cost). Before the enhanced deduction was put in place, companies could only deduct an amount equal to their cost for an item donated to an IRS 501c3 public charity. However, the inventory or other property may have a fair market value higher than its cost. Under 170e3, an enhanced deduction allows the donor to take a deduction up to twice the cost/basis of the item if the value is higher than the cost.

Donated property under 170e3 must be used for the ill, needy or infant (using IRS definitions). Equipment used by a facility providing service to the needy also qualifies. The same acknowledgement requirements that apply for any donations still applies under 170e3 donations. Though materials that are donated under 170e3 cannot be resold, organizations may charge a “user fee, handling fee, or donation fee” to recoup their expenses.

How does the enhanced deduction under 170e3 work? See the sample computation below and work with your accountant or tax advisor to see how you can benefit from donation of inventory. (Source: IRS.gov)

Sample Computation

Fair Market Value (Selling Price) =

$1,000

Basis (Cost to Company)=

$ 200

Gain = (Difference between FMV and Basis, or “mark up“)=

$ 800

Step 1: Determine the Gain

Fair Market Value $1000 – Basis $200=

$ 800

Step 2: Reduce the deduction to not more than 1/2 the gain

Gain $800 x 1/2 =

$ 400

Fair Market Value $1000 – 1/2 Gain $400 =

$ 600

Step 3: The deduction cannot exceed twice the basis or cost

$600 – 2 x Basis (2 x $200 = $400) =

$ 200

Step 4: Add the limitation in Step 1 to the limit in Step 2 and subtract from the fair market value to determine the deduction

$1000 – Gain ($400 + $200) =

$ 400

Deduction = Twice the Cost

The IRS allows a company to take up to half the gain (mark-up) on an item,

but not more than twice what the company paid for it. (Source: IRS.Gov)

Contact Waste to Charity. You’ll get an immediate response and an honest reply. If we can’t help you, we’ll help to find a solution for you.

Through the donation of obsolete, closeout or liquidation inventory, Waste to Charity acts as a charitable reverse logistics solution for US Businesses.

 

What is Reverse Logistics?

Reverse Logistics is the process of moving goods from their typical final destination (YOUR COMPANY’S USUAL SALES OUTLETS) to another point, for the purpose of capturing value otherwise lost or unavailable. Another use of reverse logistics is or for the proper disposal of your products.

In our experience, Reverse Logistic activities include:

The processing of returned merchandise for reasons such as:

Damaged inventory, whether damaged during transit, at your facility, or at a sales outlet. While these items will look worthless to a buyer expecting a brand new product, a damaged item is welcomed in Waste to Charity’s inventory donation program. The less extensive the damage, the higher the deductible value.

 

Seasonal inventory which may not be suitable for next year’s styles, or projected sales. When these items are sent to Waste to Charity’s inventory donation program, they are valued between the purchase and transit price, and the usual retail price. Please see IRS Publication 561 “Determining The Value of donated Property” for further information regarding the exact method of valuation.

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