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Subject:
Donate depreciated equitment as business vs. individual
Category: Business and Money > Accounting Asked by: maf202-ga List Price: $15.00 |
Posted:
25 Sep 2002 14:21 PDT
Expires: 01 Oct 2002 16:33 PDT Question ID: 69044 |
I am the 100% owner of a small business which owns significant amounts of computer equipment. Some of this equipment has been 100% depreciated on the companies books. I would like to donate the depreciated equipment to a non-profit organization. It seems there is no tax benefit to donating the equipment from the company. But, the equipment does have a fair market value greater then the fully depreciated value. Can I make the donations from myself (as an individual) and claim the FMV as a deduction on my personal tax return? Are there any risks in this approach? |
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There is no answer at this time. |
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Subject:
Re: Donate depreciated equitment as business vs. individual
From: emeritor-ga on 26 Sep 2002 03:17 PDT |
1) Why would there not be a tax benefit if the company donates the computers? Does it have to do with the form of business organization (corporation, LLC, proprietorship, etc)? Need to clarify this in order to know how to answer. 2) A tax code provision, Sec. 170(e)(1), generally has the effect of limiting the deduction for gifts of used equipment to the depreciated value. There is an exception in Sec. 170(e)(6) for certain corporate contributions of computer equipment to educational organizations. 3) If the equipment is now held by a corporation, transferring it to you personally could be a taxable event that would negate the benefit of the deduction when you donate it to charity. 'Emeritor |
Subject:
Re: Donate depreciated equitment as business vs. individual
From: maf202-ga on 26 Sep 2002 07:36 PDT |
We are an S corp. If the property were not fully depreciated we would be able to take the remaining as a deduction. As I understand it, since the equiptment is fully depreciated on our books, there is no tax bennefit to the company to donate it. However, there is a FMV for the property. So the alternative is to sell it on ebay. We would rather simply donate it for some tax bennefit rather than going through the trouble of selling it on ebay. But, if there is zero tax incentive, we may do just that. Thanks. |
Subject:
Re: Donate depreciated equitment as business vs. individual
From: pjrc2-ga on 26 Sep 2002 22:24 PDT |
>As I understand it, since the equiptment is fully depreciated on our >books, there is no tax bennefit to the company to donate it. I do not belive this to be correct. Deductions for charitable contributions are set at Fair Market Value (FMV), not book value. Just because capital equipment is fully depreciated does not mean that it has no FMV. I found the following information in IRS Publication 526 - Charitable Contributions "If you contribute property to a qualified organization, the amount of the charitable contribution is generally the fair market value of the property at the time of the contribution." (page 6) The IRS defines FMV to be, "the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts." IRS Publication 561 - Determining the Value of Donated Property, has more information on how to determine the FMV of the donated equipment. Now to the matter of whether to have the company donate the property or have you donate the property. A corporation can claim deductions for charitable contributions (at their FMV). An S corporation is a pass-through entity for tax purposes. This means that the coporation itself does not pay taxes. An informational return is filed with the IRS and the taxes are paid by the owners of the S-Corp. The income and deductions of your corporation are going to be reported on your tax return. A charitable contribution reported by your company is going to filed on your individual tax return. For S-Corps, charitable contributions are reported on the Schedule K-1 (The reporting of the shareholders' share of income, credits, deductions, etc.) Based on this information, providing that the donation is made to a qualified organization, your company can donate the computer equipment to a school, report the donation at FMV on its tax filings, and this deduction will pass through to your personal tax return. There are some other restrictions and limitation on charitable contributions that you should be aware of. Contributions can be limited to 50%, 30%, and 20% of adjusted gross income (of the tax payer). If the value exceeds certain leves (starting at $250) written documentation from the recipient is required. Some very good IRS publications to check out are: Publication 526 - Charitable Contributions Publication 561 - Determining the Value of Donated Property Instructions for Form 1120S - US Income Tax Return for an S Corporation Instructions for Form 1040 (Instructions for Schedule A, Itemized Deductions) |
Subject:
Re: Donate depreciated equipment as business vs. individual
From: emeritor-ga on 27 Sep 2002 21:01 PDT |
PJRC-2 stated the general rule for valuing donations -- but alas, there's an exception for donations of used equipment. IRS Publication 526 goes on to say: "If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction." and further: "Property used in a trade or business is considered ordinary income property to the extent of any gain that would have been treated as ordinary income because of depreciation had the property been sold at its fair market value at the time of contribution. See chapter 3 of Publication 544, Sales and Other Dispositions of Assets, for the kinds of property to which this rule applies." "Amount of deduction. The amount you can deduct for a contribution of ordinary income property is its fair market value less the amount that would be ordinary income or short-term capital gain if you sold the property for its fair market value. Generally, this rule limits the deduction to your basis in the property." Alternatively, if the S-Corp transfers the computers to its owner, it will have income equal to the profit it would have if it sold the computers. (Tax Code Sec. 311(b)) This income will pass thru to the owner's tax return. The owner could then donate the computers and deduct the fair value, but the net result is a wash. 'Emeritor ("The Devil is in the details." -'G) |
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