Don’t Discount It, Donate It: The Smart
Way To Move Unwanted Inventory
[GUEST COLUMN] Gary C. Smith
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
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
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 Corporation, 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
• 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
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.