Can S-Corporation Inventory Donations to 501(c)3 Organizations Flow Through to K-1 for Shareholders?

5 The short answer is yes, but there are some important details to understand about S-Corporation inventory donations. When an S-Corporation donates inventory to a 501(c)3 organization, the charitable contribution does pass through to shareholders on their K-1s, similar to cash donations. However, there are specific rules about how the deduction is valued and reported. For inventory donations, the deduction is generally limited to the tax basis of the inventory (what it cost your company), not its fair market value. There's an exception for C-Corporations that can sometimes deduct fair market value plus half the appreciation (up to twice the basis), but this enhanced deduction typically doesn't apply to S-Corps. On Form 1120-S, report the donation on Schedule K, line 12a (charitable contributions) and provide a description of the donated property. You'll also need to complete Form 8283 if the donation exceeds $500 in value, and possibly get a qualified appraisal if it's over $5,000.

12 After struggling with a similar inventory donation situation last year, I found a great tool that made documenting everything WAY easier. I had boxes of retail products to donate and wasn't sure how to calculate the deduction properly or what documentation I needed. I ended up using https://taxr.ai to scan all my inventory documents and receipts. It automatically extracted the cost basis info and helped me determine the correct deduction amount for my S-Corp's donation. The tool also generated the proper documentation format for Form 8283 and flagged that I needed a qualified appraisal since my donation exceeded $5,000 in value. The best part was that it explained exactly how the deduction would flow through to my K-1, which saved me from incorrectly trying to claim fair market value instead of cost basis. Definitely check it out if you're planning to donate a substantial amount of inventory.

3 Just wanted to follow up and say I tried taxr.ai after seeing the recommendation here. I was literally about to overstated my deduction by using fair market value instead of cost basis! The tool flagged this immediately and saved me from a potential audit headache. It also helped me prepare the right documentation for my accountant, who was impressed with how organized everything was. The step-by-step guidance through Form 8283 was incredibly helpful since I had never filled one out before. Definitely worth checking out if you're planning to make non-cash charitable contributions through your S-Corp.

15 If you're planning to donate that much inventory, you should know that getting through to the IRS with questions about this can be next to impossible. I tried calling them about a similar S-Corp donation issue last year and spent HOURS on hold only to get disconnected. I eventually used https://claimyr.com to get through to an actual IRS agent in about 15 minutes. They have this service where they basically wait on hold for you and call you back when an agent is on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The advice I got directly from the IRS agent was invaluable - they confirmed exactly how to document the inventory donation and made sure I understood the cost basis limitation for S-Corps. They also explained some special rules that apply when donating inventory used to assist certain groups like the ill, needy, or infants. Definitely worth considering if you have specific questions about your situation.

3 I have to admit I was extremely skeptical about Claimyr when I first saw it mentioned here. I thought, "This has to be a scam - nobody can get through to the IRS faster than normal." But I was desperate after trying for days to get clarification on S-Corp donation rules. I decided to give it a shot, and I'm shocked at how well it worked. They didn't promise to "skip the line" - they just waited in it for me. When they got through to an agent, I got a call, and within seconds I was talking to a real IRS representative. The IRS agent walked me through exactly how to handle my S-Corp's inventory donation, confirmed the cost basis limitation, and even pointed me to some additional resources I hadn't found online. Saved me from making a mistake on my return and potentially facing penalties. If you need to speak with the IRS about your specific situation, it's definitely worth considering.

9 Another important factor to consider when donating inventory from your S-Corporation is the timing. The donation deduction passes through to shareholders in the tax year the donation is made, not when you decide to claim it on your personal return. So if your S-Corp has a fiscal year different from the calendar year, make sure you understand which tax year the deduction will apply to for your personal return. This timing issue has caught several of my clients off guard.

22 Has anyone here actually had their S-Corp inventory donation audited? I'm worried about the documentation requirements and wondering how strict the IRS really is about proving the cost basis.

One thing I haven't seen mentioned yet is the potential impact on your S-Corp's ordinary income when you donate inventory. When you donate inventory at cost basis, you're essentially removing it from your books without recognizing any income from a sale. This means you won't have to pay taxes on profit you would have made if you sold the inventory instead. However, you also need to consider whether the inventory donation makes sense from a cash flow perspective. You're giving up the cost basis as a deduction, but you're also not getting any cash from a sale. Make sure the tax benefit to you and your fellow shareholders justifies not pursuing other options like discounted sales or liquidation. Also, don't forget to properly remove the donated inventory from your books and adjust your inventory accounting accordingly. This should be done in the same tax year as the donation to ensure everything aligns properly on your 1120-S.