Tax Credit
Under certain circumstances, corporations may take a charitable contribution deduction for donated inventory up to twice the inventory’s cost basis, (see the “Enhanced” Deduction Rule below.)
Other benefits to companies: Donating surplus products saves cash resources otherwise spent on continued warehousing and/or disposal costs. Donating also enhances a company’s image by demonstrating social responsibility, and it helps people in need.
What are considered donations?
“Gifts-in-Kind” includes building supplies, medical supplies, clothing, shoes, school supplies and books, relief supplies, blankets, personal care products, tools, and sporting goods.
The “Enhanced” Deduction Rule
Generally, the amount of a contribution a corporation can deduct for donations of inventory is limited to the cost basis of the items. However, since 170(e)(3) compliant organizations’ policies are to use donated products solely for the care of the ill, needy or infants, a corporate donor may be entitled to a deduction greater than the cost if the donated product is deemed a “qualified” contribution. To qualify for the “enhanced” deduction, Section 170(e)(3) of the Internal Revenue Code and the applicable Treasury regulations provide that the donor must be a corporation other than an S corporation.
Check with your Accountant to see how the “Enhanced Deduction Rule” may apply to your corporation.
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