Donating For a Tax Deduction
I recently wrote an article for our sister publication Lawn & Garden Retailer. In it, I suggested independent garden centers get involved in their communities, primarily to promote their businesses while giving to those in need — which has been found to be important to consumers. So, why am I telling you this? What does this have to do with you? Do you need to promote yourself to consumers? Sometimes, but that is just one of the reasons giving to charity is important for greenhouse growers.
The Lawn & Garden Retailer article got us at GPN thinking about all of the product you — greenhouse growers — donate or could donate to churches, schools, fundraisers, etc. Doing what’s right, making other people happy, treating others as you would like to be treated, even getting your name out there for product and name recognition — of course, these should be the overriding reasons to donate, but let’s put all of those things we already know aside and talk about what giving to charity can do to your bottom line. How many times have you filled your orders only to find you have another 100 or so poinsettias to get rid of? Is it just shrink? If you don’t donate it to a local charity, you should. According to section 170(e)(3) of the U.S. Internal Revenue Code, you can donate inventory to a qualified not-for-profit organization and receive a tax deduction.
As I began researching this information, I realized just how many provisions and qualifications there are for donating product — so much that we don’t have that much space in the magazine. So, what I will do is try to cut out all of the information you don’t need and focus on what most likely pertains to you, the greenhouse grower, though each company is different and needs to research the many aspects of deductions through donations.
Who To Give To
Do you get asked often to donate to festivals or parties? These may or may not be tax deductible, depending on the purpose and/or the host of the event. Who or what organization you donate to matters greatly when determining deductions. In order to receive deductions you must donate to a 501(c)(3) non-profit organization. According to the Internal Revenue Service (IRS), only five types of organizations qualify as charitable organizations.
• A community chest, corporation, trust, fund or foundation organized or created in or under the laws of the United States, any state, the District of Columbia or any possession of the United States (including Puerto Rico). It must be organized and operated only for one or more of the following purposes: religious, charitable, educational, scientific, literary or the prevention of cruelty to children or animals. Certain organizations that foster national or international amateur sports competition also qualify.
- War veterans’ organizations, including posts, auxiliaries, trusts or foundations organized in the United States or any of its possessions.
- Domestic fraternal societies, orders and associations operating under the lodge system. A contribution to these is deductible only if it is to be used solely for charitable, religious, scientific, literary or educational purposes or for the prevention of cruelty to children or animals.
- Certain nonprofit cemetery companies or corporations. Your contribution to this is not deductible if it can be used for the care of a specific lot or mausoleum crypt.
- The United States or any state, the District of Columbia, a U.S. possession (including Puerto Rico), a political subdivision of a state or U.S. possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. To be deductible, your contribution to this type of organization must be made solely for public purposes.
What To Do
Of course, there is paperwork you need to obtain, and there are forms you will need to fill out. According to the IRS, “If you claim a deduction of at least $250 but not more than $500 for a non-cash charitable contribution, you must get and keep an acknowledgement of your contribution from the qualified organization. If you made more than one contribution of $250 or more, you must have either a separate acknowledgement for each or one acknowledgement that shows your total contributions.”
This acknowledgement must be given on or before the earlier of the date you file your return for the year you make the contribution or the due date, including extensions, for filing the return. The written acknowledgement must contain certain information:
- The name of the charitable organization.
- The date and location of the charitable contribution.
- A reasonably detailed description of the property.
- A description (but not necessarily the value) of any property you contributed.
- Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits).
- A description and good faith estimate of the value of any goods or services described above.
You must also keep reliable written records that contain:
- The name and address of the organization to which you contributed.
- The date and location of the contribution.
- A description of the property, in detail, under reasonable circumstances.
- The fair market value of the property at the time of the
contribution and how you figured the fair market value.
- The cost or other basis of the property if you must reduce its fair market value by appreciation.
- The amount you claim as a deduction for the tax year as a result of the contribution, if you contribute less than your entire interest in the property during the tax year.
- The terms of any conditions attached to the gift of property.
Note that there is additional information needed for deductions of $500 or more.
As you saw above, you must determine the fair market value of your contribution. Fair market value is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller.
What You Get
According to an Entrepreneur magazine article, “the deduction you can take is based on the type of structure you’ve selected for your business. If you’re organized as an S corporation, a partnership or a sole proprietorship and you donate inventory to a charity that uses the goods to assist the sick, the poor or children you’re generally able to take a tax deduction for the cost of producing the inventory. For companies organized as C corporations, the deduction rises to the cost of the inventory plus half the difference between that cost and the inventory’s fair market value. In this case the deduction can’t be more than twice the cost of the goods.”
Like I said earlier, there is so much information to be considered when it comes to deductions. A financial consultant or your company attorney will be of great help when thinking about making contributions and researching tax deductions. Make sure to visit www.irs.gov for more information.
How can donating unused product affect your bottom line?