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Small Business Inventory and Charity

Preparation
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What if you have a small business such as a sole proprietorship that files on Schedule C and you want to contribute some of your inventory to charity? How should you account for that? There are some things to consider regarding charitable contributions of inventory before you do so.

First, consider that unfortunately, charitable contributions of any kind cannot be deducted on Schedule C. They are deducted on Schedule A of your personal tax return as itemized deductions. Obviously, you should consider whether or not you even itemize your deductions or take the standard. And with the new tax legislation that is going into effect for 2018, you may have itemized in the past but will not in the new year.

Second, consider that when given to charity, inventory accounting has to, well, account for that. Which means you follow those rules and adjust your inventory for the smaller of the cost (basis) of your items donated or the fair market value (FMV) at the time of contribution. That value must be removed from your inventory accounting for cost of goods sold (COGS).

In general, you should also consider the amount you plan to donate, as this can also effect the overall equation of whether or not it benefits you to donate your inventory.

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About the author

Stacie

Stacie

 

Stacie Gosnell, EA is the Principal Tax Specialist and owner of Viera Tax located in the Viera-Suntree tax office. Stacie served as the Tax Manager for a flight school in West Lafayette, Indiana where she gained expertise in business tax matters and in working with the Internal Revenue Service and several state Departments of Revenue. Stacie has worked with tax attorneys, served as an internal consultant to Digital Equipment Corporation in Boston and owned and operated a consulting firm, servicing the needs of major corporations in the Great Lakes area.

Stacie is a member of The National Society of Accountants and has served on the Executive Committee of the Florida Society of Enrolled Agents (FSEA), an affiliate of the National Association of Enrolled Agents. She also served on the FSEA Space Coast Chapter Board of Directors and as the Continuing Education Representative for the Chapter. Licensed by the IRS as an Enrolled Agent tax specialist, she maintains continuing professional education that exceeds the IRS' requirements and adheres to a code of ethics outlined in the Department of Treasury Regulations. Stacie is a graduate of Franklin and Marshall College and earned a Master of Science degree from Tufts University in Boston.

 

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