Disclaimer: This article is intended to provide general information about a specific tax subject. Nothing in this article or other articles from this contributor should be considered tax or legal advice. If you have questions about the deductibility of charitable contributions, check with a tax professional.
Have you been having a hard time getting rid of your excess or obsolete inventory that’s sitting on Amazon’s warehouse for some time already? If yes, then you might as well been worrying about the long-term storage fees that Amazon charges you.
Well, worry no more as Amazon heard your cry – through FBA Donations Program, you are given the opportunity to automatically donate your unwanted inventory to selected US charities and be able to write it off from your taxes. Pretty cool, right?
FBA Donations Program
As stated on Amazon’s help page, when you request as disposal of overstock, returned, or unwanted FBA inventory stored in US Fulfillment Centers, Amazon makes it available to selected US charities. Usual disposal fees apply but delivery arrangements are handled by Amazon on your behalf with no additional cost.
The FBA Donations Program is only available for inventory stored in US Fulfillment Centers.
All FBA sellers are enrolled in the FBA Donations program by default. To confirm your enrollment status, go to:
Settings > Fulfillment by Amazon > FBA Donations Program
Should you wish you opt-out, you can do so anytime by disabling it in your FBA Settings.
Good360 is listed 501(c)3 non-profit and is Amazon’s partner in distributing donated FBA inventory across their diverse network of US non-profit organizations that support people in need.
Details of your donated items can be downloaded from your Removal Shipment Detail Report. Donated items are marked “Donation” in the Carrier Name field.
Though businesses are entitled to write off tax from donated inventory, not all donations are eligible. This is why it is important that you know what are the requirements for you to receive a valuable tax deduction.
The Internal Revenue Service encourages businesses to donate excess inventory to charities. Thus, it provides incentives through tax deductions. However, the donation should meet the following criteria:
- The donated inventory shouldn’t be above the needed quantity for the normal course of business.
- The products/items donated can be used by the charitable organization to meet its mission.
- The inventory donated should be items that are normally sold in the course of business such as clothing, food, or furniture.
- It is not allowed for you to donate items that will personally benefit you. For example, donating items for the room in a retirement home that you expect to occupy.
Inventory or items that are no longer in season, have expired, or are already outdated for your business’ purposes is considered as obsolete inventory. Obsolete inventory also includes items that need to be disposed of due to changes that a business needs to undergo.
Donation of obsolete inventory may qualify for a tax deduction if it still has retained some value and are still usable by the receiving charitable organization. Examples of these are forklifts, conveyor systems, and factory equipment.
Qualified Charitable Organizations
Donating excess or obsolete inventory may qualify for a tax write-off only if the receiving charitable organization is listed as 501(c)(3). Examples of these organizations are schools, hospitals, and orphanages. If you are unsure of your chosen charity’s status, ask.
You may also visit IRS’ list of qualified charities.
It is important to note though that you cannot qualify for a tax write-off for a donation given to foreign charities. However, a lot of foreign charities have branches in the US to which you can contribute a tax-deductible donation.
Amount of Deduction
The amount of tax deduction that you can claim depends on the type of your business.
- For sole proprietorships, S corporations, and partnerships, the tax incentive is a straight cost deduction. This means that if the fair market value of your item is $100, you can write off $100 from your tax obligation.
- Businesses that operate as a C corporation are able to get a larger tx deduction which will be available if the charity provides you with a written statement that indicates your donation met several requirements. For example, the charity used the property or inventory for the intended manner like caring for the ill, helping the financially needy or infants and the property cannot be sold.
If you are to make a large contribution, ask the organization or check its deductibility code in the IRS database. If there’s no deductibility code listed, it means the organization is a public charity to which donations of up to half of your adjusted gross income, in most cases, are deductible.
Below are the IRS deductibility status codes:
- PC: A public charity. Deductibility limitation: 50%
- POF: A private operating foundation. Deductibility limitation: 30%
- PF: A private foundation. Deductibility limitation: 30% (generally)
- GROUP: Generally, a central organization holding a group exemption letter, whose subordinate units covered by the group exemption are also eligible to receive tax-deductible contributions, even though they are not separately listed. Deductibility limitation: Depends on various factors
- LODGE: A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes. Deductibility limitation: 30%
- UNKWN: A charitable organization whose public charity status has not been determined. Deductibility limitation: Depends on various factors
- EO: An organization described in section 170(c) of the Internal Revenue Code other than a public charity or a private foundation. Deductibility limitation: Depends on various factors
- FED: An organization to which contributions are deductible if made for the use of a Federal Governmental unit. Deductibility limitation: 50%
- FORGN: A foreign-addressed organization – generally, these are organizations formed in the United States that conduct activities in foreign countries. Certain foreign organizations that receive charitable contributions deductible pursuant to treaty are also included, as are organizations created in U.S. possessions. Deductibility limitation: Depends on various factors
- SO: A type 1, type 2, or functionally integrated type 3 supporting organization. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities. Deductibility limitation: 50%
- SONFI: A non-functionally integrated type 3 supporting organization. Deductibility limitation: 50%
- SOUNK: A supporting organization of unspecified type. Deductibility limitation: 50%
How to Claim the Charitable Donations as Tax Deduction
For partnerships, S-corporations and LLCs:
For sole proprietorships:
Sole proprietors should list the information as an itemized deduction on his tax return.
For non-cash donations with a total value of more than $500, you need to complete Section A of Form 8283 with specifics your donations – which organizations received them and how much the items or inventory worth.
For donations of $250 or more at a time, be sure to acquire a receipt from the organization. For smaller gifts though, your cancelled check or other documentation would suffice. Say, for a regular weekly donation of $30, a receipt is not needed as long as a record is kept to prove the donated amounts. This applies even though your eventual contribution ended up being more than $250.
Most organizations though send a receipt for the total amount donated at the end of the year.
We hope you find this post useful in dealing with your tax deductions related to your charitable donations.
Have you got the chance to donate and claim a tax write off? Share them below!