Corporations donating inventory to qualified public charities such as food banks may be allowed liberalized deductions for contributions.

 

Under the Tax Reform Act of 1976. a deduction is allowed for the fair market value of the property limited to the cost of the property plus one half of the gross profit. In no event may the deduction exceed two times the cost.

 

For example, assume a corporation produces an item at a cost of $1.00 and sells it for $1.50. The charitable deduction is determined as follows:

 

Cost                                                               $1.00

One-Half of $.50 gross profit                          .25

Total Charitable contribution deductions  $1.25

 

* The amount of the charitable contribution deduction is determined by the fair market value of the inventory. If the product has passed the manufacturer’s “pull date”, it likely can no longer be considered worth the normal selling price. Thus, it would be desirable to donate inventory before the “pull date” passes.

 

*Fair market value for a manufacturer would normally be the wholesale price.

 

*Fair market value for a retailer would normally be retail price.

 

*If the inventory is damaged, a discount from the normal retail price might be appropriate.

 

*For specific advice on corporate tax benefits for charitable deductions, the corporation’s tax accountant should be consulted.