S4. Can a company donate goods out of its inventory? If so, how much can the official donation receipt be issued for?
Short answerLong answer
Yes, this is considered gifts in kind. A company can donate from its inventory and a receipt may be issued for gifts in kind of property included in the donor’s inventory.More…
A gift of inventory is considered to be given at fair market value. So, the value on the official donation receipt should be identical to the fair market value. The receipt issued must state that the gift is a gift in kind and must provide a brief description. The business then has to include in its income the fair market value of the gift.
The income of the company who donated from its inventory is increased because it must include the value of the gift. This increase, however, is offset by the charitable deduction.
Where a transaction results in a material benefit to the business,
- the rules related to split receipting may apply;
- the benefit may be such that no part of the transaction can be considered a gift.
In cases where there is consideration, a business may claim these costs as promotional expenses rather than seeking a charitable donation receipt.
Most non-monetary donations, commonly called gifts in kind, are subject to special rules about how their fair market value is calculated.Gifting and receipting- Questions and Answers outlines the details on these special rules.