News & Events

Enhanced Charitable Contribution Deductions

June 22, 2009

Those computer relics, barrels of food or boxes of books stacking up in your storage rooms or warehouse could actually be costing you money — not just in storage costs, but also in lost tax savings. Fortunately, Uncle Sam has extended the enhanced charitable contribution deduction through Dec. 31, 2009.

Under previous law, the deduction was limited to cost (if the charity didn’t resell the item). Understandably, this was a challenge for donors wishing to contribute items where fair market value exceeded cost.

The enhanced deduction allows businesses contributing food, computer equipment and books to qualifying organizations to receive a deduction of up to twice the cost or basis of an item, if the value is higher than cost. Businesses donating books must certify in writing that they are suitable for, and will be used in, the recipient organization’s educational programs.

Contributions of “apparently wholesome” foods by farmers and ranchers will be treated as qualified conservation contributions (under Internal Revenue Code Section 170) through the end of 2009. For purposes of this law, the IRS defines apparently wholesome foods as those which are intended for human consumption (meeting all legal requirements for quality and labeling), but which aren’t readily marketable because of age, freshness, surplus or other reasons. The enhanced deduction for qualifying foods is equal to the lesser of your basis in the food plus half of its appreciation, or twice the food’s basis.

In contrast to the 50% contribution limitation for most charitable deductions, qualified conservation contributions made by farmers are deductible up to 100% of taxable income. Additionally, unused deductions may be carried forward for up to 15 years. S corporation shareholders also may benefit from special tax treatment when making charitable contributions of qualifying property. The expanded provisions include a special rule allowing shareholders to take into account their pro-rata share of charitable deductions, even if those deductions exceed the shareholder’s adjusted basis, through Dec. 31, 2009.

If your business owns books, food or computers that may qualify for the enhanced charitable contribution deduction, you may have a great opportunity in 2009 to reduce your tax burden with one sweep through your warehouse.

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