Is a Donation an Asset?

Donations are gifts given freely without compensation to a nonprofit organization. The donation is a deductible expense, and can be a good tax-saving strategy. Nonprofit organizations are also among the best at generating revenue from their charitable efforts. They have many ways to generate money, including membership fees, selling products, and donating services. Whether you have a large amount of money to donate or are a philanthropist, it is important to know how to properly record your contributions.

Normally, your donation is recorded as an asset. If you are a business owner, you should set up a dedicated account for this purpose. This will appear on your company’s income statement. You should also consult with a tax or legal advisor to make sure you understand all of your options.

There are two main ways to determine the fair market value of a donation: through an appraisal, and through a simple comparison of similar assets. An appraisal can be discounted for certain factors, such as a lack of marketability, a minority interest in the property, or the presence of an asterisk (which means the item is not available for sale). However, the appraisal must be obtained no more than 60 days prior to the due date of the tax return.

The most straightforward way to figure out the fair market value of your donated asset is to simply find similar items. However, it can be tricky to do this for a complex asset. Many charitable organizations don’t have the staff or resources to review complex assets, so you may have to hire professionals.

Another way to figure out the fair market value of a donated asset is to check out its contribution margin. This is the difference in income derived from the item in question minus the variable costs. It is not as useful as an actual appraisal, and is primarily relevant for large assets.

To get an idea of the gross revenues generated by a particular nonprofit, look at its income statement. This will include all of the donations that the charity has received. After deducting expenses, the remaining amount will be called profit. For example, a donation of a thousand dollars is recorded as a contribution. In addition to a donation, the nonprofit will have to record any services provided in order to meet its charitable goals.

Some charities don’t recognize a donation of a complex asset as a worthy contribution. This may be because the donor has a looming exit strategy or has had to adjust his or her deduction in order to keep up with increasing property values. As a result, some charitable organizations are not able to offer the full benefit of your generous donation. Luckily, there are other tax-saving strategies for complex asset donors.

You can also make your gift more tax-efficient by giving an appreciated long-term asset, such as stocks or real estate. Appreciated long-term assets include shares of publicly traded securities, mutual funds, and personal property. These assets are more likely to be deductible, since the IRS allows the deduction of a certain percentage of your adjusted gross income.