Can a business claim a deduction for forgiving part of a bill?

November 8, 2006

Question

Can a business claim a tax deduction for forgiving part of a bill to a 501(c)(3) (charity)?

Answer

Yes. I'm not aware of any prohibition from claiming such a deduction. You should get an acknowledgement of the gift from the charity with a statement that no goods or services were given to you in exchange for the donation.

Stanley Balsky, CPA of Rutherford, NJ and Andy Goloboy, CPA pointed out that not all gifts of accounts receivable are deductible.

Thanks for staying alert!

I didn't include all of the details for this question, so I apologize.

An accrual basis taxpayer can claim a tax deduction for forgiveness of a debt to a charity because it has a tax basis in the account receivable from reporting the income. A cash basis taxpayer that is performing services, such as a CPA firm, will not qualify for a tax deduction for forgiving the receivable because there is no tax basis in the account receivable. The income isn't reported until it's collected.

Good luck,
Mike Gray

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Michael Gray, CPA
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