Can I Write It Off? – Donations / Monetary Gifts to Your Business

bookkeeping, gifts, business, "can i write it off"
How does the IRS feel about family/friends helping you out?

It was 11.13am on a Tuesday. I was sitting cross-legged on the floor in front of my laptop, listening to Dave Brubeck, banging out some work, looking forward to lunch. My caffeine buzz was wearing off, so I got up to make another cup of tea.

When I came back and opened my laptop again, the screen stayed black. No big surprise there–it was an older model and this was becoming the norm. I knew to just give it a second. So I sipped my tea and waited. …And waited. …And then I realized I didn't hear the hum of the machine.

You know the hum–the one that means your computer is alive.

I spent the rest of the day in panic mode, wondering where I was going to find the money to buy a new laptop. But then–wouldn't you know it?–the very next morning I got a text from my mom saying that my grandparents were sending me a little something to help with any business expenses I might have.

Wouldn't you know it…it was just enough to cover the cost of a new computer.

Thanks, Grammy and Poppa. (And Mom, because I know you told them.)

From time to time, your business confronts you with sudden expenses that you didn't know to plan for.

In those moments of small business crisis, a little help from your friends (and family) makes all the difference.

But how does the IRS view those good Samaritans?

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Let's ask Marilyn, shall we?

Can Do I Have to Write It Off?

Question: Do I have to report monetary gifts to my for-profit business?

Marilyn says:

The answer depends mainly on who is giving this monetary gift to you. 

If someone gives you money that you did not earn, you do not have to include it as income. The giver only has to report the gift (on a gift tax return) if the value is over $14,000 in a year. Each giver can gift up to $14,000 in a year to any individual without incurring a gift tax.

However, if this is a business gift that you get from a customer, that’s a little more complex. The circumstances surrounding it and the amount of the gift determine what it “non-taxable” to that giver and what might be “taxable” to the one receiving the gift. If it is immaterial gift (like at Christmas-time) then the general answer is “no”–you don’t have to include in income a monetary gift.

If the business owner deposits all or part of this money into the business to help cover bills, it should be recorded as a loan from the owner into the business or as a contribution into the business (depending on whether the business plans on paying the owner back for this money).

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So in your case, there wasn't any need for you to report as income the money your grandparents sent to cover your new laptop. And since it was under $14k, your grandparents didn't need to report it on their taxes either.

However, if something similar happened today, it would be best for you to record those funds as a contribution into the business, or as much of them as you used to help cover your business bills.

It's important to know, though, that the circumstances of the gift could change whether or not the gift should be reported as income. The “gift” and “gift tax” topic is extensive and should be researched. The IRS.gov site has lots of information on it. The IRS form to be filed (if it applies) is form 709.  Another resource is IRS publication 559. You should also consult your accountant/tax preparer as every situation and circumstances are unique and combine to result in potential different tax ramifications. Record-keeping is important.

So if this happens to you, it's a good idea to consult an accountant just to make sure you're on the up-and-up. Record-keeping is important to keep you on the good side of the tax code.

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