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Lane, You helped with this question (below) last month. I…

Hi Lane, You helped with...
Hi Lane, You helped with this question (below) last month. I have some follow up questions as I try to get this entered on a tax return:Question: I need to book the JE in Quickbooks to record the donation of inventory by a one person LLC to a nonprofit agency. The cogs has been recorded at $28.95 per item. The conservative fmv is $99 per item. Is this what my JE would look like for the business that made the donation?Dr CharitableDonation (at fmv)
Cr Revenue (at fmv)Dr COGS (at cost)
Cr Inventory (at cost)28 February 2018 12:30
Lane
Lane
Tax ProfessionalThat's right, if the LLC uses the cost method (most common) for their inventory accouninghave a follow up question on this issue from a month ago or so.In this scenario......................when the donation is entered on Schedule A, am I only allowed to take the cost as the donation amount? I believe that is how I am reading the law. But I had to recognize revenue of the fmv so it seems as if this ends up causing me to pay more tax, rather than getting a tax write off for the donation. What am I overlooking?If I look at the journal entry that was made, I have on the business books revenue less the cogs thus creating taxable income. Then on the Schedule A, I am only able to deduct cost.Business books: FMV 50,490 - cogs 14,765 = 35,725 inc to net incomeScheule A: I can deduct at cost so deduction is 14,765Net result is I still have created taxable income of 20,960 by making a donation.What am I doing wrong?
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Answered in 15 minutes by:
3/27/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,628
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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You can only deduct cost becasue these items have not yet Contributed to income.

...

If they are still in inventory you've purchased them but NOT sole them creating revenue.

...

Depending on your accounting method (if you don't use specific identification) there may be a timing issue, but what these items represent is items that have not yet BEEN sold, so revenue was generated at all. You bought them and then donated them.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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Customer reply replied 3 months ago
In February when I ran the proposed journal entry by you, you said it was correct and that included an entry to revenue at fmv. Is that not correct then????What would my entry be to get these off the books?
And then how would I record the donation on Schedule A?
Customer reply replied 3 months ago
In February when I ran the proposed journal entry by you, you said it was correct and that included an entry to revenue at fmv. Is that not correct then????What would my entry be to get these off the books?

CAn you give a link to that question ... I just did a search and don't see ANYTHING in February for me under this user name ... Would just like to see the context

...

If so I missed a part of the question. We never get to donate business items at FMV

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May have confused entries for sales with donations

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Customer reply replied 3 months ago
https://my-secure.justanswer.com/question/index/ed1a9026f6dd4190858a3f829a094b73?continueTheConversation=False&comingFromAdservEmail=False&ratedThroughEmail=False&rating=0&paymentType=Unknown

The most straightforward way simply to record the donation is

Account................Debit..............Credit

Charity expense.....500

Purchases..................................500

Total.................... 500................500

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Yep... I though you were asking simply about whether cost is used... my apologies

...

Revenue should never come into play at all here

Debit the donation as an expense

...

and credit purchases directly

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Customer reply replied 3 months ago
I have inventory account to get off books. Would I not dr cogs and cr inventory asset acct?Thanks for sorting through this with me. I am so confused.

Beginning Inventory + Purchases = Goods Available - Ending Inventory = Cost of Goods Sold.

...

SO yes, if the inventory is still there, that gets it done ... COGS is at Cost and this increases it (expenses) by the amount of the asset that's sitting there, and gets rid of the asset.

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Customer reply replied 3 months ago
that is the entry on the books. Then on the tax return..................I can take a Schedule A deduction for the donated inventory at cost, right???

That's right

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