Question

LLC Charitable Contribution of Inventory - How to notate on Turbotax Business

Forum|Forum|6 years ago
February 23, 2020
1 reply
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In 2019, my LLC (with three partners) donated all of our remaining inventory to charity and closed our business. We got a Fair Market Value appraisal of just under $32,000 for the inventory. Our beginning inventory value for 2019 was $11,272, and since we closed the business that year, I am marking the Ending Inventory as $0.00. First of all, is that correct?

And then, the second question is that, in TurboTax Business, there is also a place to enter 'Charitable Contributions' wherein it seems feasible to enter the FMV of $32,000, and attach Form 8283. However, I was under the impression that you can claim whichever is lesser of the two, FMV or Cost of Good Sold.

Any thoughts on how I should go about recording this correctly? Thank you!

TurboTax Business Windows

LudwigVan_fan

Employee

From IRS Publication 526

Inventory

If you contribute inventory (property you sell in the course of your business), the amount you can deduct is the smaller of its fair market value on the day you contributed it or its basis. The basis of contributed inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. You must remove the amount of your charitable contribution deduction from your opening inventory. It isn't part of the cost of goods sold.

If the cost of donated inventory isn't included in your opening inventory, the inventory's basis is zero and you can't claim a charitable contribution deduction. Treat the inventory's cost as you would ordinarily treat it under your method of accounting. For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year.

Link to Pub 526

https://www.irs.gov/publications/p526

In answer to part of your question, yes, you fill in the amount of the beginning inventory value and the year end is zero. However, if you're going to take a charitable contribution for the items donated, you must remove that cost from the beginning inventory and/or reduce the COS for the basis of the items donated. Otherwise you'll have a double deduction...COS AND charitable contribution. Based on the numbers you supplied, the FMV of just under $32,000 would not be used. Note above that they state the SMALLER of FMV or basis of inventory to be used for the charitable contribution.

Since you talk about partners, I'm assuming the LLC is filing as a partnership. Based on that, if you make charitable contributions, that shows up on Sch K, and on the individual Sch K-1s of the partners.

**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**