Cash card as donation

[Gretel]

Does anyone know what kind of receipt (asking for non-profit) should be given to a store that gives a cash card? I don't think it can be the value of the cash card since it includes profit. Maybe just a receipt for a non-cash donation, no value? Any thoughts?

[thomtax]

Does anyone know what kind of receipt (asking for non-profit) should be given to a store that gives a cash card? I don't think it can be the value of the cash card since it includes profit. Maybe just a receipt for a non-cash donation, no value? Any thoughts?

Gretel - do not have a positive answer to your question, but do not completely agree with the profit analysis. What if the person receiving the cash card used it to purchase something that is on clearence at below cost pricing. I'm not trying to nit pick, just give another point of perspective. As for me personally, unless there is something specific forbidding it, I would use the total amount.

LT

[wvtaxguy]

Cash Equivalent

Does anyone know what kind of receipt (asking for non-profit) should be given to a store that gives a cash card? I don't think it can be the value of the cash card since it includes profit. Maybe just a receipt for a non-cash donation, no value? Any thoughts?

I would have no problem considering it a cash contribution at its face value as long as it is reasonable under the circumstances (which this appears to be).

[totb2007]

Does anyone know what kind of receipt (asking for non-profit) should be given to a store that gives a cash card? I don't think it can be the value of the cash card since it includes profit. Maybe just a receipt for a non-cash donation, no value? Any thoughts?

Hmm, tricky. On the one hand, the store has a mark up on their inventory. Normally, donated inventory is at cost. On the other hand, below $10 value in some states and the stores are supposed to refund the cash. Deduct the value less the markup/profit? Does the store have any historical information on redemption rates on their cards and average profit? If so, then deduct the historical cost of inventory purchased with the cards.

[outwest]

Swatting at gnats...

First I think this is a nice theoretical question but not worth worrying about.

Second, think it all the way through. When the card is cashed in, the whole sale is booked as income and completely offsets the total charitable contribution. What is left? the cost of goods sold, exactly what the law allows for ordinary income property.

[Nashville]

Fmv

We are getting hung up on assumptions of this or that circumstance, and are totally getting away from the Fair Market Value of the gift.

A gift worth $800 should be valued as such.

[Gretel]

Thanks for all the thoughts. Somehow I wasn't able to think it all the way through. I was comparing it with a business that donates the labor for something custom build and charges for the material. But I can see now that this is totally different than using a cash card.

By the way, coming back to the custom build. The question came up if they can charge for the labor and donate the material. My gut feeling tells me: NO, not if it is the same business that provides the materials. What do you think?

[totb2007]

So if I read outwest's analysis properly:

2007 - donate cash cards from own store of $1000, deduct $1000
2008 - $800 gets used, book $800 income and deduct cost of goods sold, let's say $460
2009 - $150 gets used, book $150 income and deduct cost of goods sold, $90
The remaining $50 never is redeemed as amounts left on cards or cards lost and never used.

Not considering the years, I see $1540 in deductions for sales of $950 booked as income. This does not seem logical. Have I missed something?

Now having analyzed it in the above manner, even deducting historical cost for the donation of the cards does not seem proper unless the cards may be used anywhere and not just from own store/chain.

So maybe for the charity receiving the donation, the receipt should indicate whether it is a universal use card or a card that may only be used in donee's store. Donee would have to come up with the proper value.


Not sure about your custom build situation. Thinking aloud here.

Assuming it's a charity that is receiving the custom build. I can see why charging for labor and donating material is an attractive combination as deducting one's labor is not allowed. At the moment, I don't see why that could not be done regardless of whether it is the same business providing labor and materials. I would be more concerned about the relationship of the parties involved. Assuming that there is no connection, I don't see how you would have a problem. I am assuming that this type of donation represents a small fraction of the business. I am also assuming that the labor being provided is one's own labor and not hired labor.

But, then again, I was wrong with the first scenario, so maybe more thought and information on this second scenario is needed.

[Gretel]

Assuming it's a charity that is receiving the custom build. I can see why charging for labor and donating material is an attractive combination as deducting one's labor is not allowed. At the moment, I don't see why that could not be done regardless of whether it is the same business providing labor and materials. I would be more concerned about the relationship of the parties involved. Assuming that there is no connection, I don't see how you would have a problem. I am assuming that this type of donation represents a small fraction of the business. I am also assuming that the labor being provided is one's own labor and not hired labor.

But, then again, I was wrong with the first scenario, so maybe more thought and information on this second scenario is needed.

Yes, charity is receiving several prizes made out of leather for kids rodeo from owner of store. No relationship to charity whatsoever. Suggestion is to donate leather but charge for the labor. Something doesn't feel right but I was not able to find anything.

[outwest]

So if I read outwest's analysis properly:

2007 - donate cash cards from own store of $1000, deduct $1000
2008 - $800 gets used, book $800 income and deduct cost of goods sold, let's say $460
2009 - $150 gets used, book $150 income and deduct cost of goods sold, $90
The remaining $50 never is redeemed as amounts left on cards or cards lost and never used.

Not considering the years, I see $1540 in deductions for sales of $950 booked as income. This does not seem logical. Have I missed something?

Now all you have to do is net income and deductions, you are so close... $1540 deductions less offsetting $950 in sales = $590 deduction at the end of the day. Pretty close to the COGS of $460 + $90 = $550 They did get a little bump from the unused card.

[totb2007]

Now all you have to do is net income and deductions, you are so close... $1540 deductions less offsetting $950 in sales = $590 deduction at the end of the day. Pretty close to the COGS of $460 + $90 = $550 They did get a little bump from the unused card.

Maybe you are implying that the sales involving cash cards is not booked and the subsequent cost of goods sold is not deducted by the store? Normally, that is not supposed to be the way the gift cards work. Stores selling gift cards cannot book that revenue until such time as the card is redeemed. It is a liability to the store.

Sorry, can't add. Total deductions in my example would be $1550 for donor by your method. $1000 face value of store card. $550 for cost of goods sold in the subsequent 2 years attributable to the cards donated. $950 in sales booked on cards redeemed. Donated goods actually provided to end receiver, $550 at actual inventory cost to donor. Total deduction $1550 with actual sales of $950 booked leaves an excess deduction of $600 to donor. Somehow deducting the profit and the unredeemed card amounts seems wrong.

Thus the only concern is whether it is a universal use cash card (aka MasterCard, American Express, Visa) or a store card that may be used only in the donor's store or chain. Universal cash card - deduct at cost paid (if there is a discount to store or extra if there is a fee to set up) as there is no requirement that the receiver must use the card at donor's store. Simpler if only one store for a store card. Trickier if a franchise (that might depend on how many competing outlets are available locally and how many of those the donor owns or benefits from).

For the charity receipt, the charity ought to describe the gift given and leave it up to the donor to assign a reasonable value as the actual situation and value will vary and affects the actual value given.


Gretel's leather donation but charge for labor problem. Well, I suppose it would depend then on whether the winner declines to pay for labor and doesn't take possession of leather? Would that then be a donated item as the donor never completes the donation to a donee? Or would the charity retain possession of the donated material to do with as they wish?

On the other hand, it doesn't sit well to donate with strings attached. Nevermind how to report it for tax purposes as the one making the donation.

[outwest]

Okay, a blast from the past..

Paper and pencil, T-accounts, assume all in the same year.

Gift card donation
Dr Contributions........1000
Cr Gift card liability............1000

Gift Card Used
Dr Gift Card l;iabilty.....1000........ (Balance is now zero in Gift card liabilty)
Cr Sales.............................1000
Dr COGS......................500
Cr Inventory..........................500


Income statement from the above:
Sales Cr.............................1000
COGS.........................500
Contribution................1000...........
Totals.........................1500..1000
Net loss......................500 (at the end of the day, inventory cost is what is donated)

Now, I know that while the gift card is outstanding, the deduction is higher than COGS, presumably that will self correct in the future. It's a timing difference. And I know that all cards are not redeemed in full, a break for the donor. But to both of those, I'll pull out the classic audit reply: "Not material"