Donating Software Education as a LLC

Forum|Forum|4 years ago
February 6, 2022
7 replies
26 views

Hi!

My wife is CEO and owner of a birth education LLC. For a monthly membership fee, her company gives members access to a variety of tools and education around birth.

Every year, she gives a free memberships to various non-profits. Is there a place to deduct the donation of her product?

Additionally, she gives 1 year scholarships to 5 individuals from marginalized groups. Anything we should report here?

Thanks in advance for your help!

Paul

Not A Product Question

AliciaP1

Level 13

Yes! You can claim "gift" expense at a reasonable cost rate for service when given. So, if you give a scholarship in 2021 for 1 year of free service you will expense the service cost as the membership/scholarship is used and not when in full or when given. You expense a reasonable cost estimate rather than the marked-up sales price.

For instance, if you provide 1 year of service to your customer/client for $100 per month but the cost of software and membership management is $50 per month, you will expense $50 per month starting at the time the customer begins the service until the end of the tax year. If the donation was made in May and the customer signed in to start service in June, then there would be a "gift" expense on the LLC tax return of $350 ($50 x 7months).

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pdfisher2929Author

Level 2

Nice. That all makes sense.

Does this situation apply at all to the $25 limit to individuals?

I think we are fine with the scholarships that we give to non-profit organizations, but how about the individual scholarships that we give out? Those individuals are using them for their own person business (we have an application process). So are we ok here too?

Thanks again for your help!!

HelenC12

Level 15

Yes, the limit is $25.

If you give business gifts in the course of your trade or business, you can deduct all or part of the costs subject to the following limitations:

You deduct no more than $25 of the cost of business gifts you give directly or indirectly to each person during your tax year.
- If you and your spouse both give gifts to the same person, both of you are treated as one taxpayer.
- Incidental costs such as engraving, packing or shipping aren't included in the $25 limit if they don't add substantial value to the gift.
- For purposes of the $25 per person limit, don't consider gifts costing $4.00 or less that have your business name permanently engraved on the item and which you distribute on a regular basis.
Any item that could be considered either a gift or as entertainment is generally considered entertainment and cannot be deducted.
You need to have records that prove the business purpose of the gift as well as the details of the amount spent. Click here for the IRS source.

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