How should I record expenses I've covered for my charity organization and sales startup?

How should I record expenses I've covered for my charity organization and sales startup?

by Michael F. Cade, CPA, CGMA | Oct 18, 2017

I run two businesses out of my home. One is registered with the IRS as a 501(c)(3) public charity. I've put in a lot of my own money, and have increased utilities because of the rescue. Do I have to enter the expenses I have covered as donations (over $20,000), or do I enter everything as a business on my Form 1040 to reduce my adjusted gross income (AGI)? The second company is an Etsy sales startup, SP, that is currently reducing my AGI because of startup costs.

You have a few different issues to contend with, so we will tackle them one at a time.
First, any expenditures you made on behalf of the charity should be entered as donations on your personal tax return. You should retain receipts or other documentation for those expenditures to support the deduction.

You can also deduct, as a donation, the cost associated with utilities expenditures for the charity. To do so, you will need to determine an allocation of your total utilities cost. The allocation should identify the portion of the utilities cost attributed to your personal use, for the charity organization, and for your Etsy company. Document the method you use to allocate the expense to provide support for the deduction.

For your Etsy business, only enter expenses directly associated with that business. You can include the portion of your utilities cost associated with the business that was determined in the prior step. You may have other deductible home office expenses. You can learn more about home office expenses from IRS Publication 587, Business Use of Your Home.

Since you have activities in several areas of taxation, you may want to consider engaging a tax professional who can assess your overall tax situation and plan accordingly.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.
Answered by: Michael F. Cade, CPA, CGMA, is a strategy consultant and executive coach for MFCCoach LLC in Morrisville, Pa.
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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