By Gary C. Smith, President and CEO, NAEIR.
With apologies to Thomas Payne (1776), these are the tariffs that try companies’ souls.
Tariffs can significantly impact inventory management and overall business operations. Perhaps your client companies have stockpiled goods before the tariffs took effect to deflect increased costs that they would likely have to pass along to customers. This can lead to potential overstocking.
Increased inventory costs can lead to valuation challenges, potentially surpassing the net realizable value of the inventory. This may trigger write-downs. As if that weren’t bad enough, slower turnover can increase carrying costs and the risk of obsolescence.
Is there any good news here for manufacturers, wholesalers and retailers? Possibly.
Product philanthropy, also known as in-kind donation, may be able to soften the financial blow of the tariffs. It’s not a panacea, certainly, but including in-kind donation in your tax planning strategy could help cushion the bottom line for C corporations.
More on that in a bit.
But there’s a greater reason to consider in-kind donation: Your business community will be supporting people in need at a time when nonprofits are also struggling with higher prices and fewer donations. The economic uncertainty is making some donors rethink their philanthropy or pull back on their philanthropic commitments.
Making in-kind donations not only demonstrates your commitment to your community, it’s a good source of positive PR – and every company can use some of that, right?
A gifts-in-kind donation organization, of which there are several in the U.S., can make your philanthropy easy. They are nonprofits that accept an array of overstocked items, whether it’s a truckload or a few cartons, and ensure those items go to qualified 501(c)3 nonprofits. They do the legwork for you.
A reputable in-kind donation organization will not only give you a full accounting of how your donation was used; it ensures that merchandise doesn’t end up on the open market where its brand can be damaged. Or in a landfill.
An in-kind donation may benefit the bottom line as well. Section 170(e)(3) of the Internal Revenue Code states that when Regular C corporations donate inventory to qualified nonprofits, they can receive a tax deduction equal to up to twice the cost of the donated products.
For example, if a product costs $10 and retails for $30, the difference is $20. Half of $20 is $10. So, $10 (product cost) plus $10 (half the difference) equals a $20 deduction. As $20 does not exceed twice the product cost, it is an allowable deduction.
Many companies need to identify out-of-the-box strategies to navigate the tariff landscape. If inventory is becoming a greater headache, perhaps in-kind donation can be part of the answer.
Gary C. Smith is President and CEO of NAEIR, National Association for the Exchange of Industrial Resources, the largest gifts-in-kind organization in the U.S. Galesburg, Ill.-based 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. Gary can be reached at 800-562-0955.
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