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CPA question re: charitable deductions

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CPA question re: charitable deductions

Old 01-07-2013, 11:51 AM
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Default CPA question re: charitable deductions

Here's one that I hope will be an easy answer for the CPAs out there...

As a manufacturer what value can I deduct for a product we manufacture and then donate to a non profit?

Is it wholesale value or based on wholesale / retail ?
Or is it just the cost of manufacturing ?
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Old 01-07-2013, 12:18 PM
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cost to manufacture
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Old 01-07-2013, 12:21 PM
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Basically, it is your basis in the property.

The amount of a contribution of appreciated property must be reduced by the amount of gain that would not have been long-term capital gain if the property had been sold by the donor for its fair market value. Property which would generate either ordinary income or short-term capital gain if sold rather than contributed to charity is referred to in this chapter as “ordinary income property” and the required reduction is referred to as the “ordinary income reduction.” The effect of the ordinary income reduction is often to limit the charitable contributions deduction for gifts of ordinary income property to the cost basis of the property.
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Old 01-07-2013, 12:36 PM
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OK - 2 CPA's above me. Would you include only the raw material cost or an allocation of overhead ala 263A?
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Old 01-07-2013, 01:11 PM
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I'm assuming you're donating inventory.....Include the indirect costs. If not in inventory at the beginning of the year, include it all in cost of goods sold on your tax return. See below on cost of goods sold from the IRS

"Donation of inventory.
If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. The basis of donated inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. You must remove the amount of your contribution deduction from your opening inventory. It is not part of the cost of goods sold.

If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. Treat the inventory's cost as you would ordinarily treat it under your method of accounting. For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year.

Example: you acquired the contributed property in 2012 at a cost of $400, you would include the $400 cost of the property in figuring the cost of goods sold for 2012 and deduct the $50 of administrative and other expenses attributable to the property for that year. You would not be allowed any charitable contribution deduction for the contributed property.
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Old 01-07-2013, 04:12 PM
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Ok so this is where I get confused,
I can see the cost only side of it but once I take raw material and raw expenses to the point where it becomes a salable product doesn't it then have more value ?

As mentioned in Trollin s response what about the real value if that foundation were to sell that donated product ?
FWIW and in case it matters I'm taking about a long term (yearly) commitment with a wholesale value of about a half million dollars. Product has a well established history at that price point and a retail of at least double.
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Old 01-07-2013, 04:16 PM
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secondly,
Since cost to manufacture has already been expensed in salaries, raw materials etc. Does that mean that the donated goods have no value beyond that or is that value what we asign to it based on that cost ?


Thanks for all your input
FWIW this question is regarding hiring a new CPA for my business
an online business with a physical and LLC FL location, if something like this falls into your specialty and you are interested please PM me your contact info.
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Old 01-07-2013, 06:07 PM
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Cost to manufacture should have been capitalized into inventory and then expensed as sold/donated/etc. Remember that inventory is valued at the lower of cost or fair value.

Give me a call tomorrow and we'll go over your specific situation.

Brian Sullivan, CPA
813-393-9876


Originally Posted by CapeReefGuy View Post
secondly,
Since cost to manufacture has already been expensed in salaries, raw materials etc. Does that mean that the donated goods have no value beyond that or is that value what we asign to it based on that cost ?


Thanks for all your input
FWIW this question is regarding hiring a new CPA for my business
an online business with a physical and LLC FL location, if something like this falls into your specialty and you are interested please PM me your contact info.
Jetsully is offline  

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