Hi,
I have to respectively disagree with the advice Clark has provided.
In the US, the IRS clearly states that donors are responsible for placing a value on donated goods. Non-profits do not assign a value to donated bikes because it is a conflict of interest.
RAB has been advised by a CPA, that the full sale price of a refurbished bike is taxed, and that the full sale price of used parts is taxed. Our donated bikes and parts do not show up anywhere on the balance sheet. They only show up in the sale income in our profit and loss statement.
Karen
On Fri, Jun 5, 2015 at 8:53 PM, Clark Forden clarkforden@gmail.com wrote:
For those inquiring or otherwise interested...
Here's how it can be viewed from an accounting standpoint. Mind you, I am not an accountant. I would strongly recommend you consult with or hire a certified public accountant (CPA in the US), or a tax attorney, preferably one specializing in non-profits, if that is the form of your entity.
In any case, this is how I see the donation/gift of equipment from an accounting point of view. Regardless of being a non-profit [501c3 in the US, Registered Charity in Canada], or another form of ownership, generally this is how it would be handled in dual entry accounting following generally-accepted accounting principles (GAPP).
A donation/gift of equipment is made to the organization -- Assuming the bike is worth $100, you would -- 1a. Put the bike in a secure location within your facility, Debit [increase $100] Asset category *Inventory - Bikes* 1b Record the donation, Credit [increase $100] Income/Revenue category *In-Kind (non-cash) Donations*/Gifts (the latter if you are not a charity)
When the equipment is sold by the organization, say at $150 -- 2a. Accept cash for the bike, Debit [Increase $150, $157.50 with sales tax*] Asset category *Cash in Bank* 2b. If sales tax is collected in step 2a, Credit [Increase $7.50] Liability category *Sales Tax Payable, *at the time of the sale, if it applies to such a sale in your area. 2c. Record the sale, Credit [increase $150] in Revenue category *Gross Sales* 2d. Record the cost of the sale, Debit [increase $100] Sales Revenue sub-category *Cost of Good Sold* 2e. Hand over the bike to the buyer, and remove the item from inventory, Credit [decrease $100] Asset category *Inventory - Bikes* 2f. Note: Since Gross Sales of $150 is reduced by the Cost of the Sale of $100, the accounting process would clarify your *Net Sale* amount as $50 (for informational purposes mainly).
Later, if 2b applies, pay your Sales Tax Payable Liabilities to the State/Province -- 3a. Pay from your checking account to the Gov't sales tax agency, Credit [decrease $7.50] Asset category of *Cash in Bank* 3b. Remove the tax liability of the transaction, Debit [decrease $7.50] Liability category *Sales Tax Payable*
This is the general accounting activity for the donations/gifting of the equipment, and its sale, for any kind of organization. Other accounting categories may come into play if sales discounts, donor premiums, or the like, are a part of either the donation or the sale.
For non-profits, assuming this sale is part of your purpose, and therefore an exempt activity according to the IRS (or the CRA), then the net sale amount of $50 would not be taxable. If it is not an exempt activity, it could be considered non-related business income and it might be taxable. Might because, non-profits in the US are allowed a certain portion of non-related business income (outside of their exempt purpose) before it is considered taxable. Above that portion, the non-related business income would then be taxed similar to profit making entities. It makes sense for the non-profit, if there is a continual stream of non-related business income (outside of their exempt purpose), to create a wholly-owned profit making subsidiary that can function and be taxed like other businesses and with the net profit (after taxes) support the non-profit to fulfill its exempt purposes.
Again, it is strongly recommended that you defer to the expertise of a certified public account or a tax attorney (preferably those specializing in non-profit/charity laws, taxes and the rules of accounting)
- assuming sales tax rate is 5%
I hope this clarifies things. Non-profits do record sales. Don't be fearful of recording them. Publications, media, subscriptions, apparel, etc. are normal sales for non-profits. Removing a bike from your inventory and accepting cash for it does not comprise a donation, it is a sale. This is normal for the types of orgs on this forum.
Cheers, to success, Clark Forden
On Fri, Jun 5, 2015 at 11:56 AM, Angel York aniola@gmail.com wrote:
Assuming that you're run under a nonprofit, I think that if people give you bikes, those are donations. If people buy the bikes, I think that's a donation as well and I'm not sure they have to pay taxes. I would call the IRS to confirm. On May 23, 2015 7:33 AM, "Martin, Eric Vance" evmartin@indiana.edu wrote:
Clarification: I don't mean anything to do with sales taxes, which we pay on everything we sell. I mean, is this effectively a (cash) donation? Would it be evidence of public support for the IRS?
On May 23, 2015, at 10:17 AM, Martin, Eric Vance evmartin@indiana.edu
wrote:
People give us bikes, and we sell them. This is our main income.
Should we be treating this/reporting this as related business income
or as a donation (realized FMV of an in-kind donation)? What do you guys do?
We have a fiscal agent. Let's say the answer does not affect their
public support test.
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