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

For answers to new questions, subscribe to our newsletter, Michael Gray, CPA's Tax & Business Insight by filling out the form below.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.