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How Non-Cash Charitable Donations Can Lower Your Tax Liability

Around this time of year, your thoughts may already turn to the holidays and your charitable giving plans, both personally and for your business. Charitable donations are often used to reduce income and lower your tax liability as well as provide much needed support for our local non-profits.

Tax-related complications generally do not present themselves when cash gifts are made to a charity other than possible questions of proof.

However, difficulties can and do arise when you make a gift of property – common items that may be donated to charity as a tax deduction include inventory, equipment, furniture, vehicles, clothing/uniforms, stocks or even artwork.

Many companies find they have items to donate when they go through an expansion, move, change in product lines, equipment upgrade or buy fleet vehicles. These transition periods may provide opportunities to donate items to local charities.

You may consider adding property donations this year as an alternative to cash, so long as you understand the Internal Revenue Service’s (IRS) definitions and guidelines on these donations.

When you have property items for donation, consider the following before giving property contribution deduction(s) of $500 or more:

  • How the property was acquired
  • The acquisition and donation dates of the property
  • The cost or other basis of the property
  • If the property is ordinary or capital gain property
  • Fair market value of the property
  • Detailed description of the items donated
  • Written and signed receipt from the charity
  • Form 8283 must be prepared and attached to return
  • Special percentage limitations
  • Taxable income limitations for C corporations.

If the property contribution deduction(s) is $5,000 or more, the following items must also be considered in addition to the items listed above:

  • A qualified appraisal made no more than 60 days before the appraised property's contribution
  • An appraisal summary may be required as an attachment to the return depending on the amount of the deduction
  • Property exceptions where an appraisal is not required

The IRS closely scrutinizes non-cash charitable contribution deductions. There needs to be proper documentation to substantiate the donation or else the donation cannot be taken as a deduction. If the IRS audits your tax return and finds that documentation is lacking, they could disallow the property deduction and assess penalties and interest.

As you can see, contributions of property to charities are a bit more complicated than run of the mill cash contributions. If you have any questions about a contemplated contribution of property, please do not hesitate to contact your CPA in order to maximize the tax benefits of your generosity.

It may still feel like summer outside, but the holiday season is just around the corner. A CPA can help suggest ways to reduce your 2017 tax liability through charitable giving, both cash and non-cash donations. Finding tax savings as well as giving to the community we all care about is a win-win for everyone.

David Porter, CPA can be reached at dporter@pbtk.com. When he isn’t working busy tax seasons, he can be found backcountry fishing or watching his sons play baseball or race dirt bikes.

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