Larry, I have a question about what to do with my unsellable inventory. Should I take a deep discount on my boutique items, or should just give the items to charity?
The answer to your question really depends on what method will put the most cash in the salon’s pocket?
The first item you have to consider is whether or not having these items for sale at a heavy discount will take away from your regular salon product sales. What I mean by this is, if someone comes into the salon and instead of buying hair care products that carry a 50% profit margin, buys the boutique items, they are going to be better off and have more money in their pocket at the end of the day by donating the items to charity.
If this is not the case, and the clients will continue to buy hair care products along with the boutique items, the method that would give the most cash to the salon’s pocket would be to sell the items at a deep discount.
An example might explain better:
Assuming the person is in a 20% federal and state tax bracket, let’s further assume they have paid for $2,000 of these boutique items that are sitting on the shelf.
If the salon donates these items to charity, the salon will no longer have these items in inventory, which will drop their income by $2,000. Assuming the 20% tax bracket, this would mean they would pay $400 less taxes when they filed their tax return.
If they are able to sell these items for more than $400, that would give them more cash in their pocket because they would have the cash and at the same time they would have some write off for the products that were sold at a deep discount.
If you have any other questions on this, please contact me. It is a pleasure serving you.
The answer to your question really depends on what method will put the most cash in the salon’s pocket?
The first item you have to consider is whether or not having these items for sale at a heavy discount will take away from your regular salon product sales. What I mean by this is, if someone comes into the salon and instead of buying hair care products that carry a 50% profit margin, buys the boutique items, they are going to be better off and have more money in their pocket at the end of the day by donating the items to charity.
If this is not the case, and the clients will continue to buy hair care products along with the boutique items, the method that would give the most cash to the salon’s pocket would be to sell the items at a deep discount.
An example might explain better:
Assuming the person is in a 20% federal and state tax bracket, let’s further assume they have paid for $2,000 of these boutique items that are sitting on the shelf.
If the salon donates these items to charity, the salon will no longer have these items in inventory, which will drop their income by $2,000. Assuming the 20% tax bracket, this would mean they would pay $400 less taxes when they filed their tax return.
If they are able to sell these items for more than $400, that would give them more cash in their pocket because they would have the cash and at the same time they would have some write off for the products that were sold at a deep discount.
If you have any other questions on this, please contact me. It is a pleasure serving you.
Larry Kopsa CPA
