Donating wine- how to calculate tax deduction?

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Sh@n A
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Donating wine- how to calculate tax deduction?

#1 Post by Sh@n A » February 8th, 2020, 12:39 pm

I am donating a wine focused dinner for a charity auction. Each individual wine is under $250 value ($100-150 each) and in aggregate it adds up to ~$900 of value. This value is based on wine-searcher pro "lowest" listing and all bottles have a few listings. If I add in the value of tax and shipping, it goes up to ~$1000. The value of the meal will be another $900 or so, on top of the wine value. So as an aggregate donation this is < $2,000, and individual wine bottles are < $250 each.

The questions are:
1) What is deductible for wine value: what I paid (I don't have receipts, let alone cost of shipping, storage etc.), or is retail value sufficient
2) Is tax/shipping deductible for wine value
3) What records/appraisals are required? I have screen shots of each bottle's price from Wine-Searcher Pro
4) Is this an itemized donation where every bottle is listed separately on a tax form, or is this an aggregate single item deduction (all bottles + meal)

IRS link is a bit confusing, but suggests no additional forms may be needed:
https://www.irs.gov/charities-non-profi ... tributions

Was hoping someone has done this rodeo before....
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Re: Donating wine- how to calculate tax deduction?

#2 Post by cjsavino » February 8th, 2020, 3:33 pm

You deduct the full current value. No different that if you donated a stock that had appreciated in value. At this total dollar value the irs may not really care. If it was $10,000 or $100,000 they may take notice.
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alan weinberg
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Re: Donating wine- how to calculate tax deduction?

#3 Post by alan weinberg » February 8th, 2020, 4:00 pm

I think we have a tax expert here, and she may opine, but I think—and I’m no expert—it’s based on what you bought it for and not what it’s worth, contrary to what one would think. Basis, not appreciated value.
Last edited by alan weinberg on February 8th, 2020, 4:02 pm, edited 1 time in total.

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Re: Donating wine- how to calculate tax deduction?

#4 Post by M.Kaplan » February 8th, 2020, 4:11 pm

The Related-Use Rule: Income tax deductions for donations of artwork, collectibles, wine collections, watercraft, and similar tangible personal property are limited to your cost basis unless the donated personal property is related to the charity's tax-exempt purposes.
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Re: Donating wine- how to calculate tax deduction?

#5 Post by Tom G l a s g o w » February 8th, 2020, 4:14 pm

cjsavino wrote:
February 8th, 2020, 3:33 pm
You deduct the full current value. No different that if you donated a stock that had appreciated in value. At this total dollar value the irs may not really care. If it was $10,000 or $100,000 they may take notice.
Stocks are marketable securities, not collectibles. Over $5k and you need an appraisal.
Ask your tax advisor or the charity that you’re donating too. Or invite a certain someone to dinner.

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Re: Donating wine- how to calculate tax deduction?

#6 Post by Tom G l a s g o w » February 8th, 2020, 4:15 pm

Or read Mark’s advice.

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Re: Donating wine- how to calculate tax deduction?

#7 Post by JDavisRoby » February 8th, 2020, 5:41 pm

We donate wine to various charities frequently. Probably five to six cases a year total. My accountant uses cost. Sometimes I buy it specifically to donate (in the case of wine pulls mainly) so that is an easy receipt to have for documentation. Otherwise, I use the cost I’ve put in CellarTracker. He actually loves it because I can pull a list of all wine donated out of CellarTracker and export it to him along with the corresponding donation receipts from the qualifying charitable organization.
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Re: Donating wine- how to calculate tax deduction?

#8 Post by bradkaplan » February 9th, 2020, 8:47 am

I learned about the Related-Use Rule AFTER I donated a highly sought after bottle of bourbon to a non-profit a couple years ago - thought I would get a nice tax deduction, but, um, no.
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Re: Donating wine- how to calculate tax deduction?

#9 Post by alan weinberg » February 9th, 2020, 9:35 am

Tom G l a s g o w wrote:
February 8th, 2020, 4:15 pm
Or read Mark’s advice.
or the comment above his!

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Re: Donating wine- how to calculate tax deduction?

#10 Post by Arv R » February 9th, 2020, 9:36 am

Between the standard deduction for couples going up so much, and expenses like state taxes, mortgage interest etc. being capped, it seems like the charitable deduction is basically phased out for many filers.

I seem to remember at one point when people were abusing the estimated value of donated cars, the IRS started seeing what charities were doing with the cars, and if they were auctioned/sold, the donee tax deduction was capped at what the charity had received from the net sale proceeds.

That would seem to be a risk in OPs situation if they are claiming $900 in charitable deductions, and hypothetically, the dinner's auction value ended up being $600 or what not.
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Re: Donating wine- how to calculate tax deduction?

#11 Post by John O' » February 9th, 2020, 9:40 am

Sadly the IRS has been gutted by lack of funding. Unless there's something else in your return that would trigger an audit, you can deduct using whatever method you want.
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Re: Donating wine- how to calculate tax deduction?

#12 Post by Bob G » February 9th, 2020, 10:13 am

Sadly the IRS has been gutted by lack of funding
Really? Give the IRS a little credit where it is due. Check this chart from the IRS: https://www.irs.gov/pub/irs-soi/18db29cs.xls

Yes, funding is down a bit (still almost $12 billion) as are positions. But collections are up as is tax paid per capita. Cost of collections is lower too. I think this has more to do with the electronic filling requirement than anything else. There are not as many low-level paper shuffling positions needed with mandatory electronic filing these days. And this has been the trend across the past two administrations.
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Re: Donating wine- how to calculate tax deduction?

#13 Post by Mont Stern » February 9th, 2020, 11:39 am

Arv R wrote:
February 9th, 2020, 9:36 am
Between the standard deduction for couples going up so much, and expenses like state taxes, mortgage interest etc. being capped, it seems like the charitable deduction is basically phased out for many filers.

Unfortunately true at this point. [cry.gif]

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Re: Donating wine- how to calculate tax deduction?

#14 Post by Sh@n A » February 9th, 2020, 11:41 am

Thank you all for the responses. Will create additional supporting records for my basis.
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Re: Donating wine- how to calculate tax deduction?

#15 Post by John O' » February 9th, 2020, 1:32 pm

Bob G wrote:
February 9th, 2020, 10:13 am
Sadly the IRS has been gutted by lack of funding
Really? Give the IRS a little credit where it is due. Check this chart from the IRS: https://www.irs.gov/pub/irs-soi/18db29cs.xls

Yes, funding is down a bit (still almost $12 billion) as are positions. But collections are up as is tax paid per capita. Cost of collections is lower too. I think this has more to do with the electronic filling requirement than anything else. There are not as many low-level paper shuffling positions needed with mandatory electronic filing these days. And this has been the trend across the past two administrations.
No doubt electronic matching is a huge help, especially for compliance around low to moderate income tax returns. The percentage of audits has been on a steady decline for years. From everything I read, the declining funding is penny wise and pound foolish.
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Re: Donating wine- how to calculate tax deduction?

#16 Post by Philip N. Jones » February 9th, 2020, 2:46 pm

Do not do whatever you want. That is bad advice. As Mark said, deduct the basis.
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Re: Donating wine- how to calculate tax deduction?

#17 Post by Howard Cooper » February 9th, 2020, 5:47 pm

John O' wrote:
February 9th, 2020, 9:40 am
Sadly the IRS has been gutted by lack of funding. Unless there's something else in your return that would trigger an audit, you can deduct using whatever method you want.
So, you recommend tax fraud? A criminal offense?
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Re: Donating wine- how to calculate tax deduction?

#18 Post by Mark Golodetz » February 10th, 2020, 10:05 am

My accountant insists on doing it at cost; major red flag if you try messing around.
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Re: Donating wine- how to calculate tax deduction?

#19 Post by MBerto » February 10th, 2020, 10:28 am

Good thing I got so many wines that aren't worth what I paid for them.
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Re: Donating wine- how to calculate tax deduction?

#20 Post by D@ve D y r 0 f f » February 10th, 2020, 6:10 pm

The way the related-use rule makes sense to me conceptually is that the appreciation in value sure looks like income (well, capital gain to be precise) that balances out the deduction. It's one thing if you drink it, of course, but if you are going to convert it to dollars, either by selling it or taking a deduction at its full current value, then you would have to also recognize the increase in value from purchase to disposition as income, in order to be fair and consistent.

The other kicker I seem to recall from when this came up on another board a decade or two ago is that wineries get exactly zero deduction for bottles they donate. Of course, they still get to deduct the full cost of growing and making the wine from the revenue they made from selling the (now smaller by the quantity donated) wine they bottled, so there is a deduction in there somewhere, but it comes out the same as if they'd just kept it in the "library," or drank it themselves.

At least, that's how I understand it from a bunch of winos posting tax commentary on the internet. Consult your tax professional.

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Re: Donating wine- how to calculate tax deduction?

#21 Post by Howard Cooper » February 11th, 2020, 1:38 am

MBerto wrote:
February 10th, 2020, 10:28 am
Good thing I got so many wines that aren't worth what I paid for them.
Talk to your tax advisor but I think the actual rule is FMV but no more than cost.
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Re: Donating wine- how to calculate tax deduction?

#22 Post by MBerto » February 11th, 2020, 7:29 am

Howard Cooper wrote:
February 11th, 2020, 1:38 am
MBerto wrote:
February 10th, 2020, 10:28 am
Good thing I got so many wines that aren't worth what I paid for them.
Talk to your tax advisor but I think the actual rule is FMV but no more than cost.
My tax advisor said to stop buying so much sh1tty wine.
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Re: Donating wine- how to calculate tax deduction?

#23 Post by Howard Cooper » February 11th, 2020, 12:03 pm

MBerto wrote:
February 11th, 2020, 7:29 am
Howard Cooper wrote:
February 11th, 2020, 1:38 am
MBerto wrote:
February 10th, 2020, 10:28 am
Good thing I got so many wines that aren't worth what I paid for them.
Talk to your tax advisor but I think the actual rule is FMV but no more than cost.
My tax advisor said to stop buying so much sh1tty wine.
Seems like good advice. What kinda of wine are you buying that do down in value?
Howard

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Re: Donating wine- how to calculate tax deduction?

#24 Post by MBerto » February 11th, 2020, 12:15 pm

Howard Cooper wrote:
February 11th, 2020, 12:03 pm

Seems like good advice. What kinda of wine are you buying that do down in value?
I got all this Bordeaux I bought about 10 years ago - I'm sure it's gone bad by now.
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Re: Donating wine- how to calculate tax deduction?

#25 Post by Jason T » February 11th, 2020, 12:23 pm

I’d guess that outside of a handful of wines, most wines are “worth” less than their cost, especially in the short to medium term. The market for most wines is thin, and the friction quite high.

And when I say “handful” I mean the obvious candidates - high end Bordeaux, Burgundy, Champagne, Rhône’s, Barolo, cult Cali’s etc. But that’s a tiny, tiny fraction of the wine out there.

I think if most of us had to liquidate our collection in a short time frame we’d take a bath. That to me implies the wines are worth less than their cost.
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Re: Donating wine- how to calculate tax deduction?

#26 Post by Chris Seiber » February 11th, 2020, 12:31 pm

MBerto wrote:
February 10th, 2020, 10:28 am
Good thing I got so many wines that aren't worth what I paid for them.
Indeed. I'm going to be donating a "Goopy High Scoring Australian Shiraz from the early 2000s" tasting the next time around.

Joking aside, it would be a good reason not to pick appreciated wines for donations and donated tasting events. Yet another market-distorting behavior encouraged by the tax code, such as elderly people hanging onto appreciated stocks and real estate to their deaths, so they can get a stepped up basis through inheritance.
Last edited by Chris Seiber on February 11th, 2020, 12:34 pm, edited 1 time in total.

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Re: Donating wine- how to calculate tax deduction?

#27 Post by Howard Cooper » February 11th, 2020, 12:33 pm

MBerto wrote:
February 11th, 2020, 12:15 pm
Howard Cooper wrote:
February 11th, 2020, 12:03 pm

Seems like good advice. What kinda of wine are you buying that do down in value?
I got all this Bordeaux I bought about 10 years ago - I'm sure it's gone bad by now.
???
Howard

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Re: Donating wine- how to calculate tax deduction?

#28 Post by Chris Seiber » February 11th, 2020, 12:37 pm

Sh@n A wrote:
February 8th, 2020, 12:39 pm

2) Is tax/shipping deductible for wine value
3) What records/appraisals are required? I have screen shots of each bottle's price from Wine-Searcher Pro
Can anyone respond on these two good questions from the original post, particularly #3?

Do you need to produce actual purchase receipts for the donated bottles, or is it enough to have evidence of what the bottle would have cost at the time it was purchased?

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Re: Donating wine- how to calculate tax deduction?

#29 Post by Mark Golodetz » February 11th, 2020, 12:45 pm

2. Yes shipping is part of cost, as is cost of any storage. I also deduct the cost of professional wine memberships, publications and charitable donations against capital gains.
3. Actual sales receipts are best of course. Anything else according to your accountant’s appetite for risk.

Overall, you are better off selling your wines at market, and donating the proceeds.
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Re: Donating wine- how to calculate tax deduction?

#30 Post by Mark Golodetz » February 11th, 2020, 1:07 pm

Chris Seiber wrote:
February 11th, 2020, 12:31 pm
MBerto wrote:
February 10th, 2020, 10:28 am
Good thing I got so many wines that aren't worth what I paid for them.
Indeed. I'm going to be donating a "Goopy High Scoring Australian Shiraz from the early 2000s" tasting the next time around.

Joking aside, it would be a good reason not to pick appreciated wines for donations and donated tasting events. Yet another market-distorting behavior encouraged by the tax code, such as elderly people hanging onto appreciated stocks and real estate to their deaths, so they can get a stepped up basis through inheritance.
Wine is a law unto itself; on paper I can donate the full market value to the charity, who would in turn buy the wines from me at that cost. But, because I cannot legally sell wine to that charity, I am stuck.
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Re: Donating wine- how to calculate tax deduction?

#31 Post by crickey » February 11th, 2020, 1:20 pm

This is the relevant IRS publication.

https://www.irs.gov/pub/irs-pdf/p526.pdf

It says you use fair market value for a good like wine that has decreased in value. Wines that may have increased in value have a more complicated rule set I'm not going to summarize. 526 defines "fair market value" as "...the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts."
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Re: Donating wine- how to calculate tax deduction?

#32 Post by Paul Miller » February 11th, 2020, 1:35 pm

If anybody is looking to donate wine, I'm on the Board of a charity, Blessons for Women (www.blessons.org), and we're always looking for wine in our charity auctions and events, particularly if the wine is from a woman-owned winery or the winemaker is female. Just sayin'.
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Re: Donating wine- how to calculate tax deduction?

#33 Post by John Kight » February 11th, 2020, 1:53 pm

M.Kaplan wrote:
February 8th, 2020, 4:11 pm
The Related-Use Rule: Income tax deductions for donations of artwork, collectibles, wine collections, watercraft, and similar tangible personal property are limited to your cost basis unless the donated personal property is related to the charity's tax-exempt purposes.
This is exactly correct. That is why someone needs to create a "charity" whose charitable purpose is to teach the underprivileged to enjoy and appreciate fine wine that is donated by collectors for such purpose.

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