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Deduction for computer donations: Prove it or lose it

by on
in Small Business Tax,Small Business Tax Deduction Strategies

Are you ready for a computer upgrade? If the answer is "yes," don't just toss out your old equipment.

Strategy: Donate the equipment to a qualified charity that needs used PC equipment. That way, you can generally deduct the fair market value of the equipment on the date you make the charitable contribution.

So, you get a tax deduction for property you were essentially going to toss in the trash.

But remember, it's vital to keep de-tailed records to back up your charitable deductions in case the IRS calls you on the carpet. Without such backups, you may get no deduction at all.

3 recordkeeping hurdles

Generally, you can write off donations of used personal assets as long as they're given to a qualified charitable organization. If those assets have depreciated in value—such as used computer equipment—the deduction is equal to the asset's fair market value.

You must meet strict IRS recordkeeping requirements to nail down that deduction.

The three key rules to keep in mind:

1. Obtain a receipt for each contribution. The receipt should include the date, a description of the assets and the name and location of the group receiving it.

2. When you file your tax return, fill out Form 8283, Noncash Charitable Contributions, for asset donations (other than certain publicly traded securities) valued at more than $500.

3. Fill out Schedule B of Form 8283 for contributions valued above $5,000, and attach an independent written appraisal of the property's value.

Case study: The IRS means business

If you don't have the necessary proof in hand, the IRS will shut you out of a deduction. As a new case shows, the tax agency means business.

Case in point: A taxpayer deducted donations of used computer equipment, software and office equipment totaling more than $40,000 over two tax years. But he failed to provide any written proof of the contributions, nor did he attempt to verify the identity of the group receiving the donation.

For a different year, the taxpayer produced a receipt for donations totaling more than $15,000, but the receipt didn't describe the property contributed. Nor did the taxpayer prove the identity of the recipient organization or obtain the written appraisal required for noncash contributions valued at more than $5,000.

Case closed: The decision was a no-brainer for the Tax Court. It denied all the deductions. (Castleton, TC Memo 2005-58)

Tip: You'll need to pay a fee to obtain an independent appraisal, but it's usually well worth the expense. Plus, you can deduct the appraisal fee itself as a miscellaneous expense, subject to the usual 2-percent-of-AGI floor.

Online resources:

PC disposal sources

• PC Disposal.com: www.pcdisposal.com

• Hearts and Minds: www.heartsandminds.org/links/computers.htm

• Used Computer.com: www.usedcomputer.com/nonprof.html

• Intel: www.intel.com/community/used_pc.htm

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