> Non-cash donations are tax deductible; for example, milage and fuel while
> delivering Meals on Wheels to shut-ins, books to the county library, and
> items given to Goodwill. For those of us who are sole members of an LLC the
> company's net profits roll over to our personal accounts so both business
> and personal donations (cash and non-cash) are reported on my personal tax
> reports.
>
> For years I've sent my accountant the proof of non-cash donations separate
> from the business and personal financial reports for tax preparation. I've
> decided now to record these in my personal books so they show up in the
> year's balance sheet and income statement.
>
>> If the item does have significant value but for some reason you never
>> entered them in your books, you would create one or more asset accounts
>> for them. Then you'd make two transactions for each item:
>> (1) Debit: asset account
>> Credit: Equity (I think this is a case for making a direct credit to
>> the main equity account, essentially a correcting item, because the item
>> is not new income but something that you've had all along but just not
>> in your books.)
>> (2) Debit: Expenses:Charity
>> Credit: asset account
>>
>
> I'll look closely at this. It makes sense and allows me to think about it
> until I see something from my accountant.
>
I'm Canadian-trained, so your CPA will have to direct you on the tax
calculations. You are correct that they're fundamentally an expense to the
business.
DR Expense & CR Asset, as suggested in (2) is fundamentally correct: charitable
donations should be in an expense account. Credits go to the source account for
the donation, which can be an asset or even an expense. Using your examples:
Meals on Wheels: when you gas up, get car maintenance, etc., you DR the
appropriate automotive expense and credit cash/credit/shareholder
contributions, etc. When you can reliably calculate the portion of those
expenditures that are charitable, you DR donation and CR the appropriate
automotive expense. The net result is that you're transferring the charitable
value of your automotive expenses from your SG&A into donations.
Goodwill & library donations: unless the US system is fundamentally different
from Canada's, asset disposals are calculated on fair market value, not book
value, so there's an extra step. You need to write the value of the asset on
the books down to its fair market value before booking the donation. Say you're
donating old computers to Goodwill that have a cost basis of $1,000 and a book
value of $500 (after depreciation). Goodwill says that the value of the
computers is currently $400. Step one: write down the computers to $400: DR
Loss on asset disposal (or deprecation, depending on the tax rules) $100; CR
Computer asset $100. Step two: record the donation, similar to the previous
example: DR Donation expense $400; CR Computer asset $400. Or you can do it in
one step if you're confident: DR Donation $400; DR loss on asset disposal $100;
CR Computer asset $500.
Your accountant should be able to calculate the rest from there.
If you're astute, you'll notice that you can have a _gain_ on an asset
disposal when the FMV has increased over book value. In this case, you'd have
to credit the asset disposal (or depreciation, depending on the tax rules)
account to balance the difference between the asset and the donation amounts.
For example, if you donated a rare book to a library that has doubled from $100
to $200 in value, then your entry would be: DR: Donation expense $200; CR: Rare
book $100; CR: Gain on asset disposal $100.
Making direct contributions to Equity as suggested in (1) is _strongly_
discouraged, especially in corporations. You need to maintain the corporation
as an autonomous legal entity, so you cannot blend your equity with the
corporation's. At least when filing Canadian returns, equity transactions are
an easy way to get a call from CRA (Canada's IRS) as they expect Equity =
shareholder capital + cumulative profits (or losses) over the life of the
corporation.
I hope that helps.
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