Business That Makes Donations

[Burke]

LLC, operating as a sole proprietorship sells logo specialty clothing. As advertised on website, he donates (lesser expensive / no logo) items one-for-one to needy childrens' organizations. Admirable, but an ord & necessary business expense? Having a hard time coming to grips with treating these donations as anything other than charitable on Sche A. And treating these as inventory withdrawn for personal use. Any comments?

[MAMalody]

You seem to have only two options. !) advertising or 2) contributions. I tend to lean toward the contribution angle.

[appelman]

But not on Schedule C!

If you go the contribution route, it's a Schedule A deduction for the proprietor.

[taxxcpa]

My son-in-law has the same type business and I deduct donations of this type to schools or churches as a Schedule A donation.

[Openfire]

I wonder if this will change at some point. It really is part of his advertising as well, because it is a social media type of advertising, and it does cost him. I agree with you, but it really does start to touch the line. Does he live in one of the 19 states that allows Social Enterprise companies? If he generates enough income from this to cover the cost of starting that form of a company, it might be worth looking into.

[Burke]

Had not considered it as an advertising expense. Can't see IRS going along with that, but will research to see if there have been any rulings. Never heard of the Social Enterprise companies. The only reason I threw it out was that the TP considers it as part of his business plan (which it is) and I wanted to see if anyone had ever dealt with it. You never know what it might turn up, and I like to have an open mind. Unfortunately, he can no longer itemize so the charitable write-off does not help him any longer.

[Burke]

I agree with you, but it really does start to touch the line. Does he live in one of the 19 states that allows Social Enterprise companies? If he generates enough income from this to cover the cost of starting that form of a company, it might be worth looking into.

I did some research on this subject, and found that my state (in which he established the LLC) is not one of the 19 who have approved this type of company, which are referred to as L3C's. (North Carolina which had approved them, has repealed that designation.) They have no special tax treatment, so are treated as regular LLC's are in that regard. It appears their primary purpose is to establish themselves as low-profit, with a charitable purpose in order to attract foundation grants or contributions. I don't think we have any choice but to treat his donations as Sche A items.