Upload tax deductions for computer donations

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in Small Business Tax,Small Business Tax Deduction Strategies

Are you ready for a computer upgrade? Don’t trash the old one if it no longer meets your needs. Besides helping to save the environment, you can save taxes to boot.

Strategy: Donate the PC to a charity. Usually, you can deduct the full fair market value of the computer. Therefore, you can seize a tax deduction for property you were going to discard.

Keep detailed records to back up your charitable deductions in case the IRS ever calls you on the carpet. Otherwise, you may get no deduction at all.

Here’s the whole story: Generally, you can claim deductions for used personal property that you donate to a qualified charitable organization. The deduction amount for property that has depreciated in value—such as used computer equipment—is equal to its fair market value on the contribution date. But you must meet strict IRS record-keeping requirements to nail down the deduction.

There are three key rules to keep in mind:

1. Obtain a receipt for each contribution given to charity. The receipt should include the name of the donee, the date and location of the contribution and a detailed description of the property (to the extent it’s possible).

2. When you file your tax return, complete Schedule A of Form 8283, Noncash Charitable Contributions, for property (other than certain publicly traded securities) valued at more than $500.

3. For contributions valued at more than $5,000, fill out Schedule B of Form 8283 and attach an independent written appraisal of the property’s value.

This sounds easy enough, but the IRS may not simply accept your word about the value of donated computers.

Recent case: A taxpayer deducted more than $40,000 of computers and related equipment donated to charity over two years. Yet the taxpayer failed to provide any proof of the value or verification of the charities receiving the property. Result: The Tax Court denied all the deductions. (Castleton, TC Memo 2005-58)

To protect your deduction, have the computers appraised by a reputable outfit. In this case, the best defense is a good offense.

Tip: Of course, you can deduct the appraisal itself as a miscellaneous expense, subject to the usual 2%-of-AGI limit.

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