Should a Business Give Cash or Assets to a Charity?

Should a Business Give Cash or Assets to a Charity? – Around the end of the calendar year, businesses start looking for methods to reduce their taxes, and many starts looking at assets that have been collecting dust for months. These assets could include the following:

  • Office equipment or furniture that is no longer in use
  • Machinery that is obsolete (or not so obsolete)
  • Vehicles that haven’t been utilized in a long time

If you’ve been considering donating some equipment or furniture to charity, that’s terrific, but make sure you take advantage of the tax benefits of a charitable donation before you begin.

Before You Consider a Business Donation

If you’re curious about what kind of tax savings your donation will provide for your company, here’s what you need to know:

  • If your company is a corporation, all donations, whether in the form of assets, cash, or investments, can be deducted from your taxes.
  • If your company isn’t incorporated, it won’t be able to make a tax-deductible donation. Any charitable contributions must be claimed on
  • Schedule A of the owners’ personal tax filings.
  • The ability to deduct charitable contributions was significantly altered by the 2017 Tax Reform Act.

To learn how your intended donation would affect your business or personal tax status, consult a tax specialist.

Considering Where to Donate

First, see if you can deduct your charitable contributions from your taxes. To claim a deduction, you must donate to a charity that has been approved as a non-profit by the Internal Revenue Service. The IRS Exempt Organization Select Check website has a comprehensive list of approved charities as well as a search engine.

Valuing Assets

Before deciding whether to donate an asset or sell it and donate the proceeds, you must first:

  • Calculate the asset’s original value when you bought it, including the cost of delivery and setup.
  • Calculate the current fair market value of the asset.

To prove the original value of a company asset, you should keep accurate and thorough documents.

Appraising Business Property

For gifts of company assets or property worth more than $250, you must be able to show that the fair market value is accurate. This may need obtaining an appraisal from a third-party appraiser. Learn more about charity gift tax deductions.

Consult Your Tax Advisor 

Before deciding whether to give the asset or the cash earnings from its sale, ask your tax counsel once you’ve assessed the initial worth and current fair market value of your donation. Several factors, such as possible cash gains and the type of business you own, may influence your selection. Here are some general recommendations to assist you in making your decision:

  • Consider if the asset’s value has risen (appreciated) or fallen (depreciated).
  • If the object has risen in value, donating it straight to the charity will likely save you more money in taxes. If you sell the asset and donate the proceeds to charity, the rise in value will almost certainly result in a capital gain, which means higher taxes for you or your company. The asset will almost certainly be able to be sold or auctioned off for a higher price by the charity.
  • If the asset has depreciated, it is usually preferable to sell it at a loss and donate the earnings to charity. You’ll only get a deduction for the drop in value if you give the depreciated asset directly.
  • If you’re giving inventory, you’ll need to figure out how much it costs using LIFO, FIFO, or another method. You can deduct the lesser of the fair market value or the tax basis.
  • If you’re donating a home with a mortgage, you must deduct the amount of interest you paid or will pay after the donation from the fair market value. On the same amount, you can’t claim the interest deduction and the charitable deduction.

Documenting the Gift

Whether you gift cash or assets, you will need a letter from the organization acknowledging your donation. For cash donations, the letter should specify the actual amount given. Property and asset gifts are not valued by the organization. You must be able to demonstrate worth through an appraisal or other third-party assessment.

NOTE: Tax regulations change frequently, so you should get counsel from a tax professional for the most up-to-date information. The information in this article is not intended to be tax advice and should not be used as such.

Read Also:

How to Deduct Charitable Donations

What Happens If You Don’t Pay Business Income Tax?

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