Tax Benefits of Donating


The United States Congress has created a federal tax law to encourage corporations to donate certain kinds of property to charitable organizations to be used “for the care of the ill, the needy, or infants”. By distributing donated medical supplies and equipment through a network of qualified charity partners, Globus Relief can help corporations and small businesses qualify for this special tax benefit. This form answers some of the most common questions about tax deductions for in-kind donations. For more detailed information or advice, please consult your legal or tax advisors. Additional tax laws may apply in your state. 

Frequently Asked Questions

What is the tax incentive for businesses donating inventory to Globus Relief for distribution to people in need? 

Section 170(e)(3) of Internal Revenue Service Code creates an enhanced deduction for businesses that donate property. Under 170(e)(3), the donor may take a deduction up to twice the item's cost or of the item's basis if its value is higher than its cost. 

What types of products can be donated to qualify for this special tax benefit under section 170(e)(3)? 

Types of property eligible for this special tax rule include inventory, equipment or real property used in the donor’s trade or business. 

How must donated materials be used in order for a donor to qualify for deductions under 170(c)(3)? 

Donated property under 170(c)(3) must be used to help “the ill, needy or infants.” Though materials cannot be resold, a charity may charge a handling fee to recoup its expenses. 

How is the tax benefit calculated? 

The IRS allows a company to take an enhanced property deduction which equals the lesser of: 

1) The cost plus half the mark-up, or
2) Twice the cost. 

Please see the sidebar for a sample calculation.  

Could it benefit a company to make a donation of inventory before marking down the items? 

Yes. Companies might save money by donating slow-moving items prior to marking down the price. In addition, donors can save the cost of other expenses like warehousing, handling or disposing of the inventory. 

SAMPLE CALCULATION 


This sample computation for a fictitious donation demonstrates the process of calculating a deduction under the 170(e)(3) section of the IRS code. This is an example only and is not intended as either legal or tax advice. Please consult your legal or tax advisors before making a 170(e)(3) donation. 

XYZ Corp. would like to donate a 2015 model CT scanner.

1) What is the Fair Market Value?
    $1,000,000 

2) What is the Cost Basis?
    $200,000 

3) Calculate the Mark Up:
    $1,000,000 - $200,000 = $800,000 

4a) Calculate the Cost Basis plus one-half of the Mark Up:
    $200,000 + ($800,000/2) = $600,000 

4b) Calculate twice the Cost Basis:
    $200,000 x 2 = $400,000 

5) The special deduction equals the lesser of 4a and 4b:
    $600,000 vs. $400,000
    $400,000 = Special Deduction 

Please contact us to learn more!