When you donate excess inventory, your company can experience much greater benefits than liquidating it. Donating lowers your gross income, while liquidating adds to it, increasing your taxes. Liquidating often brings in only about 5-8% of the inventory’s retail value, while donating can get you a tax deduction up to 200% of the items’ cost. Plus, you get the added benefit of helping put more good into the world (and looking good to your customers at the same time).
There are several factors to be aware of when considering donating excess inventory, including fair market value.
What is Fair Market Value (FMV)?
Fair market value, often abbreviated as FMV, is defined as the dollar amount a knowledgeable buyer would be willing to pay for an item. It’s important to remember there are two requirements to ensure this price is indeed “fair.” The buyer cannot be in a desperate buying situation – for example, being on a tight deadline to purchase the item. The same goes for the seller (no “fire sale” situations). Both parties must also be fully informed about the time’s material details, like defects. These conditions have to be met for the selling price to qualify as the FMV for the item(s).
How do I calculate FMV?
There are several ways to estimate FMV on your own, but it’s always wise to consult a professional. Here are a few paths you can take to determine FMV on your own:
- Current selling price – if the asset has recently been bought or sold, you can use that prices as an indicator of FMV
- Comparable sales – Consider how comparable items are selling in your market
- Replacement cost – Consider what it would cost to buy or build a similar asset
The best way to calculate FMV, however, is to talk to an expert. You can be much more confident in the FMV with a professional appraisal. For property donations valued more than $5000, you must file Form 8283, and you may be required to get a written appraisal to substantiate the Fair Market Value.
How does FMV impact charitable inventory donations?
When your company chooses to donate excess inventory, the IRS allows you to take a deduction for the FMV or cost of the assets – whichever is lower. However, if you donate to an organization that is repurposing the goods, donors incorporated as C corporations qualify for enhanced deductions. Under 170(e), these companies get an additional write-off for half the difference between the assets’ cost and the FMV – up to 200% of the cost.
It’s therefore important to determine an accurate FMV to get the most out of your inventory donation and tax deduction.
How does FMV impact a donation to WIN Warehouse?
Donations to WIN Warehouse are used by a wide range of nonprofits to further their missions all over the world. Plus, WIN Warehouse qualifies under the law that says C corp donors can receive an additional write-off for half the difference between cost and FMV, up to 200% of the assets’ cost. But no matter how your business is incorporated, you get the added benefit of helping change the world.
Learn more about how to get the most out of your excess inventory by visiting the donor page.
Note: WIN Warehouse cannot determine FMV for your assets, but we can refer you to a qualified professional to help you do so.