Tax Deductions for Corporate Product Donations

Tax Deductions for Corporate Product Donations

Corporate-Tax-ReturnDonating product is a great way to get into the world of corporate philanthropy. It is also a great way for business leaders to give back just by leveraging their company’s strengths and assets.  It’s easy for companies to get started with the help of a charity like Gear The World. We can show you not only how to get tax deductions for corporate product donations but also see the significant impact your donation can have in your community or across the world. Plus, it’s been proven to increase employee engagement, recruitment, retention and the bragging rights that go along with responsible corporate citizenship.

The IRS regulations when it comes to these kinds of product donations can be confusing, but they are worth leveraging. Why? Because the IRS rules are such that a company is likely to see greater tax benefits from donating inventory than from donating cash.

With that in mind, here are a few rules of the road:

  • To qualify for a tax deduction, donations must go to nonprofits that are listed as 501(c)(3) organizations and are a public charity or private operating foundation.
  • If your business is a sole proprietorship, S corporation or partnership, your tax incentive is limited to the item’s (cost) basis.  For example, if the item costs $30 to make and the fair market value (FMV) is $50, the tax deduction is $30.
  • If your business is a C corporation, you can get a larger tax deduction than the basis if you get a written letter from the charity stating that the donation meets several requirements, including:
    • The donation is being used to care for the financially needy, ill or infants and is used in a manner related to the donee’s exempt purpose.
    • A third party has not used the property unless that use is incidental to the primary use of caring for the ill, needy, or infants
    • Donated property has not been transferred by the donee in exchange for money, other property, or services.

Such an “enhanced” deduction allows the donor to deduct the lesser of (i) the midpoint between cost and FMV and (ii) twice cost.  In the previous example, where the item costs $30 to make and the FMV is $50, the provisions permit a deduction of $40.

For more information on in-kind giving, including details about how to determine the precise value of a deduction, and the process by which you can claim a deduction, an addendum released by the IRS on in-kind contributions is a helpful guide.

If you’re wondering how to get started with giving product donations, give us a call at 407-930-2984 or send us a quick email at asap@geartheworld.com.

 

© 2016 C.M. Blake and GEAR The World. All Rights Reserved.

 

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