Specialty Toys & Gifts
DONATING TO YOUR BOTTOM LINE Giving excess toy inventory to charity helps others and makes business sense. by GARY C. SMITH, president and CEO, National Association for the Exchange of Industrial Resources (NAEIR) BEING CHARITABLE AND BEING profitable do not have to be mutually exclusive—that’s what companies find when they turn excess inventory into donations that benefit charitable groups in their communities. Wholesalers, retailers, and distributors of toys face challenges when they look for the best way to move unprofitable stock. While they can discount or liquidate products, it hurts profits and their brand. Many savvy companies turn to product philanthropy—donating unwanted stock to charity. This gets unwanted inventory off the shelves, and also earns the company a healthy tax deduction. Companies that use a gifts-in-kind organization, which acts as a go-between for corporate product donations and nonprofit organizations, streamline the donation process. With a gifts-in-kind group, employees don’t have to screen charities to find the right fit because the organization does it for them. Using a Gifts-in-Kind Group First, a corporation contacts a gifts-in-kind organization about the excess product, and then completes paperwork to become a recognized donor. Then, it can contact the giftsin-kind organization whenever it wants to dispose of excess inventory. When member charities need items, they are able to browse through a catalog of donated products from member companies. The donor company receives proper tax documentation when they make their initial donation. Once the products have been distributed, the gifts-in-kind organization sends additional documentation to identify the specific charities that received their products. Surprisingly Big Benefits It’s no surprise that donations made to qualified charities are tax deductible. What may be surprising, however, is that if a company is a C Corp, it can receive a federal tax deduction equal to up to twice the cost of the donated products. According to IRC Section 170(e)(3), “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.”
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Paula DeJaynes and Gary C. Smith participate in Airtex Design Group of Minneapolis’ stuffed animal donation.
For example, if your product costs $10 to produce and you sell it for $30, the difference is $20. Half of $20 is $10. So, use the formula: $10 (product cost) + $10 (half the difference) = $20 deduction. Since $20 does not exceed twice the product cost, it does not exceed the maximum allowable deduction. Compare this to when companies move inventory via online auctions or liquidation agents and, for most companies, it’s a much better deal. Plus, it’s a lot less stressful and labor intensive. Beyond the Bottom Line Aside from helping companies boost their bottom lines, product philanthropy also helps boost their image. Selling products at a discount devalues a company’s product and brand; however, donating products creates good will and elevates a company’s image. Yet, even the most motivated companies may have trouble finding time to give back to their communities. Gifts-in-kind organizations make that process easier, because they distribute products to charities, which in turn distribute them to people in need. Finally, donating products helps employees feel good about their workplace. When they see that that their company reaches out to help those in need, their company’s goodwill enhances how they feel about work. How to Get Started There are several gifts-in-kind organizations operating in the U.S., and, like anything, not all are created equal. Companies will want to choose one that is easy to work with
and has a roster of charities. It’s important to ask these questions: • What charities does the company serve? • Do my company’s products fit with what their member charities want? • Is the donation process streamlined? • Will they provide detailed records of donations and the charities that received them? • Are there any fees involved? Businesses will want to choose a gifts-in-kind group that does not charge fees to corporate donors. When to Start There is no “right” time to start using a gifts-in-kind group. But the sooner a business starts, the sooner it will reap the benefits. Donating excess inventory does more than just help trim a company’s tax bill; it also helps the company operate more profitably. Getting rid of excess inventory will free up space for high-performing products. It may even speed up order fulfillment, in turn, raising customer satisfaction. Finally, instead of leaving products to languish in warehouses, companies put them into the hands of people who really need them. It’s a great and easy way to make a difference in people’s lives. » Gary C. Smith is president and CEO of National Association for the Exchange of Industrial Resources (NAEIR), the largest gifts-in-kind organization in the U.S. To date, NAEIR has received donations of excess inventory from more than 8,000 U.S. corporations and redistributed more than $3 billion in products to nonprofits and schools.
Many of us are traveling to Denver for the American Specialty Toy Retailing Association’s (ASTRA’s) Marketplace & Academy trade show, and in...