Gift Certificate Deduction...when?

Business By flamingobaker Updated 21 Jan 2011 , 5:21pm by scp1127

flamingobaker Posted 20 Jan 2011 , 1:25pm
post #1 of 7

Last year I donated two gift certificates for charity. Neither have been used yet. Do I take the deduction on my taxes for 2010, or this year when they use it?

6 replies
Kitagrl Posted 20 Jan 2011 , 2:00pm
post #2 of 7
Quote:
Originally Posted by flamingobaker

Last year I donated two gift certificates for charity. Neither have been used yet. Do I take the deduction on my taxes for 2010, or this year when they use it?




I would say now. You gave it, and if it was the sort of place that gave receipts, they'd have given you a receipt at the time of donation. If the customer doesn't use it, that's their problem, but you still made the donation.

(I won't be doing those anymore! Donated one in late 2009 that expired the end of 2010 and the guy, although he was nice, ordered his two weeks before the date, which was only a week before the end of the year...so I felt like I had to honor it.... I'll donate to charity, but no more certificates!)

jason_kraft Posted 20 Jan 2011 , 3:33pm
post #3 of 7

I believe it would be more appropriate to deduct the GCs when they are actually used...you didn't actually take a loss in 2010 from the GCs so there should be no deduction.

When someone places an order with the GC, you would only need to recognize (and pay tax on) the income from that order after the GC has been applied, that's where the tax deduction comes in. If you took the deduction in 2010, you would need to remember to pay tax on the full pre-GC amount of the order, otherwise you would be double-dipping.

Kitagrl Posted 20 Jan 2011 , 3:37pm
post #4 of 7
Quote:
Originally Posted by jasonkraft

I believe it would be more appropriate to deduct the GCs when they are actually used...you didn't actually take a loss in 2010 from the GCs so there should be no deduction.

When someone places an order with the GC, you would only need to recognize (and pay tax on) the income from that order after the GC has been applied, that's where the tax deduction comes in. If you took the deduction in 2010, you would need to remember to pay tax on the full pre-GC amount of the order, otherwise you would be double-dipping.




Yeah I meant to take the deduction for 2010 but then any expenses incurred in 2011 for the certificate would have to be reported as normal expenses/profit for this year.... but I figure the donation was made in 2010 so it can count for 2010, as long as nothing is counted once the GC is used.

jason_kraft Posted 20 Jan 2011 , 3:48pm
post #5 of 7

According to a directive from the IRS (item 9 in the below link):

http://www.irs.gov/businesses/article/0,,id=187523,00.html

When is a taxpayer entitled to a deduction for the value of the gift cards donated to a qualified charitable organization?

Facts must be ascertained to establish whether the donated gift card has been redeemed and the item has been released from inventory through cost of goods sold. The technical advisor can assist the examiner in determining the time when liability becomes fixed and economic performance occurs to entitle the taxpayer to a deduction.

(Translation: you are entitled to a deduction when the GC has an economic impact on your organization -- i.e. when you actually have to pay for it.)

flamingobaker Posted 21 Jan 2011 , 1:48pm
post #6 of 7

Thanks all!

scp1127 Posted 21 Jan 2011 , 5:21pm
post #7 of 7

jasonkraft said it perfectly. It is only a piece of paper until it is redeemed.

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