Goods and Services
The value of your contributions is usually at Fair Market Value (FMV) and must be substantial in nature. An example of this would be the donation of inventory to a Good Will Store with a value of at least $250. Your company has some excess clothing in inventory that it purchased in bulk, but cannot be moved through a sale and such time has passed where the product may no longer have a market value as far as styling trends goes. These items can be placed up for a charitable contribution to a Good Will Store or used by an Outreach program for its clients who are in need of clothing in order to progress in their lives. Upon transaction of this donation the organization will give a receipt to confirm the acceptance of the goods. This receipt should be attached to the bill of goods to verify the purchase, as well as the accounting transaction which reduces your inventory and records the contribution.
Another example would be for services that you provide to the public. This is an excellent area to perform community service and also receive a tax deduction as well. The United Way and organization like this frequently have events where low income and indigent persons assemble to receive, on a large scale, services that they could not afford or have access to. Your service would classify as a charitable contribution at fair market value and the organization would give you a receipt stating the value of these services for tax purposes. On your side this receipt as well as any of the materials used would be considered deductions. Please note that these events have such a large gathering of people that through word of mouth and publicity your business will be seen by many individuals.
Other examples may include donating scrap from your finished goods product. This could be something as simple as unused fruit and vegetables, or a product that does not meet your standards and therefore could not be saleable. Once again the fair market value rules apply.
This type of contribution is the most common and is the easiest to maintain. Per IRS regulations, a receipt is needed for any single contribution over $250 in order to claim the deduction. Another method is planned giving to an organization. This can be done monthly, quarterly, or annually depending upon your preference. Usually, pledge donations are made at events such as a Gala and paid throughout the year until the target has been met. As a self-employed person, this is a good way to plan your annual charitable deduction and maintain your cash flow reserves.
These are just a few examples of how your business can benefit the community, expand your marketing reach, and receive a tax break as well. Please remember whenever possible, consult your accountant for guidelines on your Schedule C tax form as limitations apply to this types of deduction.
The above information can be found in Publication 526 and guidelines for disclosure in Publication 1771.