Inventory Donation Tax Deduction: A Worked Example for C Corporations
Most companies know they can deduct donated inventory. Fewer know that C corporations may deduct more than cost basis when the goods go to a qualified charity for the ill, the needy or infants. Here is the math in plain English.
The two deductions
Standard deduction. Available to most businesses. Generally limited to the cost basis of the donated inventory.
Enhanced deduction, IRC Section 170(e)(3). For C corporations donating general inventory, and for all business types donating food. Generally the lesser of cost basis plus half of the gain (fair market value minus basis), or twice the cost basis.
A worked example
A C corporation donates discontinued housewares.
- Cost basis: $40,000
- Fair market value (what it would sell for): $100,000
- Gain: $60,000. Half of the gain: $30,000
- Basis plus half the gain: $70,000
- Twice basis: $80,000
The enhanced deduction is the lesser of $70,000 and $80,000, so $70,000. The standard deduction would have been $40,000. Donating instead of destroying moved $30,000 more into the deduction, before counting the trucking saved and the disposal fee avoided.
What the charity has to confirm
- It is a qualified 501(c)(3)
- The goods will be used for the care of the ill, the needy or infants
- The goods will not be sold or traded for money, property or services
- A written statement confirming the above, which we collect for you
Where companies get tripped up
- FDA regulated products such as food, supplements and cosmetics must meet FDA requirements on the donation date and for the 180 days before
- Annual charitable deduction limits apply based on taxable income
- Fair market value needs support, such as recent sales data
- S corporations, partnerships and sole proprietors only get the enhanced deduction for food
We deliver the tax donation receipt, the signed statement of use, bill of lading, photos and an itemized list in one package so your CPA has what they need. Read the full tax deduction guide or get a quote.
General information, not tax advice. Confirm with your CPA.
