Businesses tend to consider ways to cut their taxes toward the end of the calendar year. Many businesses start looking at assets that have been sitting around gathering dust for months. These assets can include:
- Out-of-date office equipment or furniture
- Obsolete, or not so obsolete, machinery
- Vehicles that are no longer being used
If you have been thinking about donating some equipment or furniture to charity, that is great, but make sure you maximize the tax benefits of a charitable donation before you start turning over property.
Before You Consider a Business Donation
If you are wondering what type of tax break your generous donation will bring your business, there are a few things you need to know:
- If your business is a corporation, the business may take a tax deduction for any donations, whether they are assets, cash, or investments.
- If your business isn’t a corporation, the business can not make a deductible donation. Any deduction for donations must be made through the personal tax returns of the owners, Schedule A.
Check with your own tax professional to learn how your charitable donation will affect your business or personal tax situation.
Considering Where to Donate
First look at whether you are able to take a tax deduction for giving to your charity of choice. You have to donate to a charity that is approved by the Internal Revenue Service as a non-profit to claim a tax deduction. The IRS Exempt Organization Select Check gives you a complete list of approved charities, as well as a search tool.
Valuing Assets
Before you make a decision about whether to donate an asset or to sell it and donate the cash, you must also:
- Determine the original value of the asset when you purchased it, including the cost of shipping and setting it up.
- Estimate the asset’s current fair market value.
You should always keep accurate records on business assets so you can substantiate the original value.
Appraising Business Property
You have to be able to demonstrate that the fair market value is precise for donations of business assets and or donation of property with a value larger than $250. This might require you get an appraisal from an appraiser.
Consult A Tax Adviser
When you have figured out the original value and the current fair market value of your donation, consider talking to your tax adviser before making a decision about whether to donate the asset or the potential cash proceeds from its sale. Some variables may affect your decision, including potential capital gain and the type of business you happen to own. Some of these guidelines can help you make the decision:
- Think about whether the asset has appreciated or depreciated in value.
- If it has appreciated, you will probably achieve larger tax benefit by donating the asset directly to the charity. If you decide to sell the asset and give the proceeds to charity, the increase in value may likely produce capital gains which will result in increased taxes for you or your business. The charity might be able to sell or auction off the asset for a higher price, as well.
- If the asset has depreciated, don’t worry you may still be able to donate it. If you do donate the depreciated asset directly, you will receive a deduction for the decreased value.
- If you are donating property with a mortgage against it, you have to reduce the fair market value by the value of any interest you have paid or will pay after the contribution. You can not claim the interest deduction and a charitable deduction on the same amount.
Documenting the Gift
You will need to have a letter from the charity that acknowledges the donation whether you donate with cash or assets. The letter should state the exact amount donated for cash donations. The charity doesn’t estimate value for property or asset donations. You must be able to prove the value with an appraisal or some other independent assessment.
For a list of work spearheading charitable donation programs visit: With Causes Charitable Network
