Start Increasing Your 2015 Tax Deduction Now

If your business is like many retail-driven franchises, you have unwanted inventory hogging valuable storage space and putting a drag on your bottom line.

The good news is, there is a smart, easy way to turn that outdated stock into a hefty asset. One that doesn't involve profit-devouring discounts or liquidation hassles. It's called product philanthropy. And for franchises that hold C Corporation status, it's one of the best kept secrets of the IRS tax code.

According to IRC Section 170(e)(3), when C Corps donate their inventory to qualified nonprofits, they can receive a federal tax deduction equal to up to twice the cost of the donated products. And when companies donate their stock to a gifts-in-kind organization, they don't have to waste valuable staff time identifying deserving charities. These organizations are nonprofits that collect corporate product donations and then turn them over to pre-screened, qualified nonprofits. Basically, they do the legwork for you.

Think a double tax deduction sounds too good to be true? It's the real deal. 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.

The Many Benefits of Product Philanthropy

Tax benefits are only the beginning. When you donate your unwanted products to gifts-in-kind organizations, you also:

• Save yourself time and headaches. No haggling with liquidators or laboring over auction sites. Once your donation is approved by your organization, you simply ship it out. It's a faster, more financially advantageous way to move inventory.
• Protect your franchise brand. When you deeply discount inventory in order to move it, you devalue your products as well as your franchise brand. But when you donate it, that's not a problem. In fact, you elevate your image by creating good will.
• Fulfill your social mission. If your core values include giving back to the community, donating to a gifts-in-kind organization will get you closer to meeting your philanthropy goals. Bonus: you'll also give your employees something to be proud of, which may positively impact morale.
• Do some good. At the end of the day, you are putting your products into the hands of someone who really needs them and appreciates them. Gifts-in-kind organizations distribute the products to qualified charities, who in turn distribute them to people in need.

How It Works

First, you need to establish a relationship with a gifts-in-kind organization. You reach out to them, provide the necessary information (it shouldn't be extensive), and become part of their donor network.

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 member charities.

At that time, the organization should send you proper tax documentation. And once the products have been donated, you'll be provided with additional documentation identifying the specific charities that received it and exactly what they received.

Six Key Questions to Ask

There are multiple gifts-in-kinds organizations in the United States. Obviously, you want to pick one that is easy to deal with and that will ensure that your products reach worthy charities. Ask these six questions, and you'll have a pretty good idea if a given organization will be right for you:

1. To which organizations do you donate? Your gifts-in-kind organization should be able to tell you exactly what type of organization they will accept as members ( i.e. , not-for-profits with 501(c)(3) status, schools, churches, etc.).
2. What types of products do you accept? The right answer here is “almost everything.” A flexible organization will accept a wide range of merchandise ' underperforming SKUs, discontinued models, seconds, buybacks, and returns ' in quantities large and small.
3. What's your donation process? As described in the prior section, the donation process should be simple, straightforward, and fast.
4. What's your record-keeping process? The organization should be able to provide you with detailed records of exactly what you donated and who received it. You'll need this when preparing your taxes. You might also ask how it controls and tracks the distribution of goods; they should have a robust system in place for this purpose.
5. Can I see your donor list? Find out who else is using this particular gifts-in-kind organization. If Fortune 500 companies continue to donate to them year after year, that's a good sign.
6. Are there any fees? The answer here should be “NO!” This service should be 100% free to corporate donors.

The Sooner, the Better

Now is a great time of year to align yourself with a gifts-in-kind organization. The sooner you start donating inventory, the larger your 2015 tax deduction ultimately will be.

In addition, you will better position your franchise business to operate more profitably and productively in 2015. The sooner you clear dead inventory off the shelves, the sooner you free up space for new products that ideally perform better for you. And if you've been moving unwanted inventory via liquidators or online auction sites, you'll free up valuable work time, too, whether your own or an employee's.

Furthermore, kicking off the New Year with a new philanthropy program sends a great message to employees. Who knows? You may inspire a wave of community giving and volunteering.

And last, but certainly not least, you'll be putting your unwanted products into the hands of those that really need them. Those items you resent for taking up precious storage space? They have the power to make a difference in someone's life.

Gary C. Smith is President and CEO of NAEIR, National Association for the Exchange of Industrial Resources, a large gifts-in-kind organization based in Galesburg, IL. To date, NAEIR (www.naeir.org) has received donations of excess inventory from more than 8,000 U.S. corporations and redistributed more than $3 billion in products to non-profits and schools. Contact NAEIR at 800-562-0955.

If your business is like many retail-driven franchises, you have unwanted inventory hogging valuable storage space and putting a drag on your bottom line.

The good news is, there is a smart, easy way to turn that outdated stock into a hefty asset. One that doesn't involve profit-devouring discounts or liquidation hassles. It's called product philanthropy. And for franchises that hold C Corporation status, it's one of the best kept secrets of the IRS tax code.

According to IRC Section 170(e)(3), when C Corps donate their inventory to qualified nonprofits, they can receive a federal tax deduction equal to up to twice the cost of the donated products. And when companies donate their stock to a gifts-in-kind organization, they don't have to waste valuable staff time identifying deserving charities. These organizations are nonprofits that collect corporate product donations and then turn them over to pre-screened, qualified nonprofits. Basically, they do the legwork for you.

Think a double tax deduction sounds too good to be true? It's the real deal. 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.

The Many Benefits of Product Philanthropy

Tax benefits are only the beginning. When you donate your unwanted products to gifts-in-kind organizations, you also:

• Save yourself time and headaches. No haggling with liquidators or laboring over auction sites. Once your donation is approved by your organization, you simply ship it out. It's a faster, more financially advantageous way to move inventory.
• Protect your franchise brand. When you deeply discount inventory in order to move it, you devalue your products as well as your franchise brand. But when you donate it, that's not a problem. In fact, you elevate your image by creating good will.
• Fulfill your social mission. If your core values include giving back to the community, donating to a gifts-in-kind organization will get you closer to meeting your philanthropy goals. Bonus: you'll also give your employees something to be proud of, which may positively impact morale.
• Do some good. At the end of the day, you are putting your products into the hands of someone who really needs them and appreciates them. Gifts-in-kind organizations distribute the products to qualified charities, who in turn distribute them to people in need.

How It Works

First, you need to establish a relationship with a gifts-in-kind organization. You reach out to them, provide the necessary information (it shouldn't be extensive), and become part of their donor network.

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 member charities.

At that time, the organization should send you proper tax documentation. And once the products have been donated, you'll be provided with additional documentation identifying the specific charities that received it and exactly what they received.

Six Key Questions to Ask

There are multiple gifts-in-kinds organizations in the United States. Obviously, you want to pick one that is easy to deal with and that will ensure that your products reach worthy charities. Ask these six questions, and you'll have a pretty good idea if a given organization will be right for you:

1. To which organizations do you donate? Your gifts-in-kind organization should be able to tell you exactly what type of organization they will accept as members ( i.e. , not-for-profits with 501(c)(3) status, schools, churches, etc.).
2. What types of products do you accept? The right answer here is “almost everything.” A flexible organization will accept a wide range of merchandise ' underperforming SKUs, discontinued models, seconds, buybacks, and returns ' in quantities large and small.
3. What's your donation process? As described in the prior section, the donation process should be simple, straightforward, and fast.
4. What's your record-keeping process? The organization should be able to provide you with detailed records of exactly what you donated and who received it. You'll need this when preparing your taxes. You might also ask how it controls and tracks the distribution of goods; they should have a robust system in place for this purpose.
5. Can I see your donor list? Find out who else is using this particular gifts-in-kind organization. If Fortune 500 companies continue to donate to them year after year, that's a good sign.
6. Are there any fees? The answer here should be “NO!” This service should be 100% free to corporate donors.

The Sooner, the Better

Now is a great time of year to align yourself with a gifts-in-kind organization. The sooner you start donating inventory, the larger your 2015 tax deduction ultimately will be.

In addition, you will better position your franchise business to operate more profitably and productively in 2015. The sooner you clear dead inventory off the shelves, the sooner you free up space for new products that ideally perform better for you. And if you've been moving unwanted inventory via liquidators or online auction sites, you'll free up valuable work time, too, whether your own or an employee's.

Furthermore, kicking off the New Year with a new philanthropy program sends a great message to employees. Who knows? You may inspire a wave of community giving and volunteering.

And last, but certainly not least, you'll be putting your unwanted products into the hands of those that really need them. Those items you resent for taking up precious storage space? They have the power to make a difference in someone's life.

Gary C. Smith is President and CEO of NAEIR, National Association for the Exchange of Industrial Resources, a large gifts-in-kind organization based in Galesburg, IL. To date, NAEIR (www.naeir.org) has received donations of excess inventory from more than 8,000 U.S. corporations and redistributed more than $3 billion in products to non-profits and schools. Contact NAEIR at 800-562-0955.