Are donated books a charitible or a business deduction?

December 1st, 2015 → 10:10 am @ Carol

Are donations of books to a school where I give a presentation business expenses?

If I “give” one of my books to someone (whether it be my editor, a family member I want to thank for their support, or a school at which I am trying to schedule an author visit), how do I account for the cost of that book?
Do I personally “buy” the book from my business at cost? Or can I deduct the expense?
Or does it depend on the person / school that is receiving it?

-MF

 

MF,
Good questions!

I’m assuming you are a sole proprietorship. Most authors are sole proprietorships.  Sole proprietorships do not deduct charitable contributions on the Schedule C Business Income or Loss. Charitable contributions are deducted on Schedule A Itemized deductions.

The cost of the books you donate can be deducted as a business expense (cost of goods sold) or, if they are donated to a school or other nonprofit with 501c3 status, as a charitable deduction, but not both.

To decide which expense category your donation falls into, consider when you purchased the books:

• If you purchase and donate the books in the same year then deduct the cost of the books as cost of goods sold.
• If you purchased the books in a prior year and they are included in your beginning inventory, then take the cost of the books as a charitable deduction on Sch A.

(kudos to https://artsandcrafts.about.com/od/taxes/a/donatingartscraftsinventory.htm for explaining the different deductions so clearly)

Here’s how the IRS explains it in Pub 334

Donation of inventory.   If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. The basis of donated 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 contribution deduction from your opening inventory. It is not part of the cost of goods sold.

If the cost of donated inventory is not included in your opening inventory, the inventory’s basis is zero and you cannot 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.

If you give away review copies (or any copies as gifts, etc), then it’s considered a “zero” sale. You can deduct the cost of the books as Cost of Goods Sold, and you will have no income from giving the books away.

The cost of the books are accounted for when you count your end-of-year inventory in the Cost of Goods Sold calculation on the tax return (Form 1040 Schedule C).

 

Carol Topp, CPA