It’s springtime and for many people, that means spring cleaning. However, spring cleaning should not just be for your home, you should also think about extending it to your business. It’s tough to admit that the inventory that’s been gathering dust on your shelf is never going to sell, or the old business equipment that you upgraded last year really has no use anymore.
Saving it is taking up something even more valuable in your business, space. It’s time to be honest with yourself and admit, you’re never going to use it again, or in the case of old inventory, you won’t be able to sell it. But instead of trashing it, why not donate it and get a little bit of benefit after you say good-bye?
Tax Deductions for Property Donations
When it comes to the IRS, property isn’t just land, it’s items too. The IRS allows you to deduct what it calls the “Fair Market Value” (FMV) of property. FMV means what you could conceivably get for a piece of property if you sold it.
For example, you can’t donate a 1994 Ford pick-up truck in marginal condition and say it’s worth $10,000. You have to either provide proof that you made sufficient upgrades to the truck to make it worth $10,000 or prove that someone was willing to pay $10,000 to purchase the truck. It’s a lot of work and that’s a simple example.
To keep everyone from having to prove the FMV of the items they donate, the IRS gives you up to $500 in donations without requiring a form. Anything more than $500, you’ll need to fill out a Form 8283 and you’ll probably need to prove that your property is worth what you say it’s worth.
There are a lot of other factors that go into determining the FMV and some of them require appraisals before you donate. If you would like to see a more extensive write up on how to determine the FMV, the IRS has drafted this article.
Once you determine the FMV of your item, deducting it may have benefits to your company come tax time. It’s an easy way to make that unwanted property do some work for you.
What Else Can You Donate and Deduct?
Money – The value of this one is pretty easy to determine. It’s a dollar for dollar deduction, though there is a cap. That cap will depend on your company’s tax situation.
Time – The value of your time is not deductible. That means you can’t deduct $400 because you volunteered for four hours and you normally bill $100/hour. However, you can deduct “…certain expenses incurred and related to your volunteer work. For example, if you host a party or fundraiser for the organization, you can deduct the costs. Other deductibles include supplies (e.g. stationery), the costs of a uniform and telephone expenses.” (Per the Small Business Administration)
Ask the Pros
The IRS has a lot of forms and a lot of systems in place to make sure that if you’re taking a tax deduction because of a donation, you’re doing it the right way. Filling out a form is only one part of the process, you need to make sure you’re also providing the correct documentation for any deduction claims you’re making. Not only does this keep you within the boundaries of the law, but it also ensures that if you get audited you’re prepared with proper documentation.
As with any tax deduction, you should always, always talk to a tax professional before you make any moves. That person is going to know the ins and outs of the tax laws better than anyone, plus he or she will be up to date on any changes that may have happened recently.
We here at Tax Credit Group can help you through all of that. All you need to do is give us a call.