Expand Deductions by Donating Inventory

Posted on Monday, June 04, 2018

Does your C corporation have slow-moving inventory or computer equipment taking up valuable warehouse space? Of course, you could liquidate it or hold a discount sale, but you might be better off donating it to charity.

Under a special tax rule, C corporations get an additional tax break for donating inventory and equipment to certain charities.

In general, when you donate inventory or property, your write-off is limited to the cost of the items or property. However, under a special provision, the tax law allows corporations a higher deduction for gifts to organizations that serve the "ill, needy or infants." In this case, a C corporation can deduct the cost of the donated inventory, plus half the difference between the cost and the selling price. The limit under this provision is a deduction of up to twice the cost of the inventory items.

In some cases, the deduction is worth more than the amount you could make by liquidating or discounting. (S corporations, partnerships and sole proprietorships are limited to a straight cost deduction.)

In addition to the inventory tax break, another law provides similar benefits for donations of computer technology to primary and secondary schools. There could be other special tax breaks depending on what you are donating and what kind of organization you are giving it to.

One clearinghouse that acts as a conduit to match contributors to charitable organizations is the National Association for the Exchange of Industrial Resources. For more information, go to www.NAEIR.org/ or call (800) 562-0955.

For additional details about these tax breaks, contact your tax adviser.

Posted in Manufacturing/Distribution

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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