Tax Tips for Businesses: Are Business Donations Tax Deductible?

Inventory management is a big part of running a successful business. But sometimes overstock is unavoidable and businesses have a choice to make regarding what to do next. One option that’s a win-win is donating those items to a charitable organization—like the Twin Cities Habitat for Humanity ReStore. 

Business donations play a huge role in providing inventory for our Habitat for Humanity ReStore, which in turn supports Twin Cities Habitat for Humanity. And while these donations fuel ReStore, they can have multiple benefits for the business that makes the donation as well. In addition to clearing out unwanted inventory, under some circumstances businesses can  also claim a tax deduction.

What is deductible?

There are deduction opportunities for businesses beyond inventory donations. As a quick overview, businesses can deduct any of the following:

• Cash donations
• Property or equipment donations
• Travel expenses (including mileage) incurred while working for a charitable organization

The value of time is NOT considered a deductible expense. So volunteer hours or time spent serving on a nonprofit board, for example, would not qualify as a deduction.

Have you already, or will you in the future, be donating property or equipment to an eligible non-profit organization like the Twin Cities Habitat for Humanity ReStore? Here’s a look at what you can deduct:

Business property donation deductions

Specific questions about what can and cannot be deducted should be addressed by a tax professional, but this brief overview can provide you with initial guidance on what is eligible:

• Business inventory: Any inventory your business donates can be deducted at fair market value the day the item(s) was donated or its basis at the beginning of the calendar year (whichever amount is smaller).
• Intellectual property: All intellectual property, such as patents or trademarks, can be donated at the basis or fair market value (whichever amount is smaller). A percentage of income from the intellectual property can also potentially be donated—either from the life of the property or 10 years (whichever is earlier).

How to deduct charitable inventory/property donations

The process of deducting donations differs based on the type of business you own. It’s important to note that all business types (except corporations) are subject to limits on deductions effective for 2018 tax returns and after. Here are some tips on how to file for your deduction based on the type of business you own:

• Sole Proprietorships and Single-member LLCs: File on Schedule C of your personal Form 1040. 
• Partnerships and Multiple-member LLCs: This is a special case because partnerships do not pay income taxes. Income and expenses, including charitable contribution deductions, are passed along to the business partners on their individual Schedule K-1 forms. Each partner takes a percentage share of the deduction on his or her personal tax return. And because the donation reduces the value of the partnership, each partner must reduce his or her interest in the partnership relative to the donation.
• S Corporations: This works similar to a partnership, with individual shareholders receiving a Schedule K-1 form that shows their share of charitable contributions on behalf of the S Corp.
• Corporations: Since the corporation and the owners are separate entities, corporations can donate property on its own behalf and take deductions for those donations. This would be done on IRS Form 1120.

It's important to consult with your tax preparer or accounting team before donating items. They can help guide you through the process used at your company and any forms that are needed. The organization that you are donating to will fill out forms needed and provide tax identification.

No matter the type of business you own, if you find yourself with inventory to donate for any reason, Twin Cities Habitat for Humanity ReStore outlets are a great option to help your community and save your business money at tax time. For more information, visit our website page on Business Donations.