NASE News

Time To Equalize Tax Breaks For Charitable Giving? (Bloomberg Businessweek)


Under current tax rules, companies organized as S-corporations, partnerships, and sole proprietorships may get greater financial benefit from trashing unused inventory than by donating it to nonprofits, says Gene Fairbrother, small business consultant to the National Association for the Self-Employed. The conundrum exists because of a disparity in tax treatment: Under IRS section 170, C-corps that donate excess inventory or equipment can claim an enhanced deduction, up to twice the cost of those items, on their taxes. What are known as pass-through entities—S-corps, partnerships, and sole proprietors—get to deduct only the original amount.

The uneven tax treatment is merely one example of myriad tax laws that put the self-employed and small businesses at a disadvantage. The inequality happens because large corporations with thousands of employees have “the ability to twist the arms of legislators,” Fairbrother says. “For years and years, the NASE has been fighting for legislation that would say a business is a business is a business, and it doesn’t matter what kind of paper you operate under.”

One step in that direction is pending legislation endorsed by the NASE and lobbying group S Corporation Association that would level the playing field on inventory donations and presumably increase small business owners’ charitable giving as a by-product. H.R. 2592, the Charitable Contribution Parity and Enhancement Act, was introduced in Congress last August by Rep. Aaron Schock (R-Ill.). The legislation was conceived two years ago by the National Association for the Exchange of Industrial Resources, a gifts-in-kind nonprofit located in Galesburg, Ill.

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