Equipment Appraisal Blog | Understanding Machinery Appraisals

When you're trying to help out a community organization or charity, a donation of equipment can be a great way to help fill their coffers or provide them with equipment that moves their mission forward. However, when it comes time to deal with finances and taxes, sometimes you need to have a bit more paperwork available than a receipt from the organization in question to document value. During those times, a donation appraisal is often the best way to verify value and provide documentation for tax agencies to back up that value. Here's a quick overview of how the donation valuation process works and in what situations it's most necessary.

How does a donation appraisal work and how can it benefit your finances?

With the changes that have happened recently in the tax code and new tax reform bill, many businesses are concerned about how their donations to charities will work out financially in the future. Fortunately, many of the issues surrounding donations are still somewhat similar to past years. However, if you're considering trying the new tactic of bunching your donation of a large value of equipment into a single year and then coasting through the next several years before your next donation, you'll need to make sure you're able to solidly document the value of your equipment.

But what about tax agencies? If the equipment you're donating is $5,000 or more in value, the IRS requires that you have an appropriate appraisal performed to document the value. What's considered an appropriate or qualified appraisal? Most tax agencies, not just the IRS, will happily accept an equipment appraisal that is performed by a certified appraiser. Why? Because this type of appraisal uses a set of standardized methodologies that have already been tested in a wide range of situations. This means that they've been perfected into methodologies that are accepted by tax agencies, financial institutions, legal circles and insurance companies.

What if you have already donated the equipment during this past year in anticipation of the new tax laws? If you didn't have the opportunity to have the machinery appraised at the time, it's not too late to have an appraisal performed. The methodologies that were mentioned earlier include developing calculations that work well for past values. These values have been used in a wide range of other situations, including insurance losses due to natural disasters, changing market conditions and similar situations. This allows a certified equipment appraiser to look back through time to the situation and conditions under which the donations took place as well as any mitigating circumstances such as cost of removing the equipment from your facility and who bore the burden of that expense.

If the machinery you're donating has a value anywhere near where the cutoffs for the tax agencies you're dealing with, a donation appraisal is a vital part of the process. Fortunately, when you're working with a certified equipment appraiser, you can even have the equipment you've already donated appraised as of the date of its donation, making it easier to deal with tax agency issues that you may have missed at the time of the donation. Working with a certified appraiser ensures that the methodology used in calculating value will be accepted by tax agencies and courts of law if necessary.

When you're considering making donations to community or charitable organizations, it's really easy to get caught up in the great feeling that you're doing something wonderful in the world. Unfortunately, many business owners or managers don't fully consider the legal and financial ramifications until after they've completed the donation process. Here are a few reasons why you should always get equipment appraisals before making that donation.

Benefit from Your Equipment Donations: Why a Machine Valuation is Vital

Get a better picture of what you're donating.

Sure, you saw something similar go at auction for about $5,000 last month, but was it really a comparable piece of equipment? Maybe the charity you're working with "knows a guy" who can provide an estimate of value for your receipt. Unfortunately, if you don't have a certified machine valuation, you don't have legal proof of the donation's actual value in many cases. When it comes time to split up a company or deal with an audit, you may be accused of intentionally dumping the company's assets instead of having to split them or pay taxes on them.

Provide documentation of donations to the charitable organization.

Many charitable organizations work with donors who will provide additional funding or matching funds once a particular goal has been met. Instead of providing them with a piece of machinery with an assigned minimum value, wouldn't you rather provide them with the actual value so they can take advantage of what those donors or matching foundations have to offer? Having a certified value gives you and the charitable organization more flexibility in what you do with that equipment appraisal.

Have that important piece of paper when the IRS comes knocking.

Every business owner dreads the possibility: the IRS audit. If you've made a donation of valuable equipment but don't have legal proof of its actual value from a certified machinery appraiser, the IRS can accuse you of dumping assets to lower your tax liability. Unfortunately, this is because companies have done this in the past. If an oil company has a banner year and knows they need new equipment, they can donate the old equipment to show a loss of assets before investing in new equipment in the new year.

If you've already donated, it's not too late to get an appraisal!

Have you already donated that equipment? Don't panic! There are legal methodologies that allow a certified machine appraiser to provide you with a backdated value for equipment that has already been donated. This type of appraisal will take into account market and industry conditions at the time the donation was made, allowing you to take advantage of the tax benefits of your donation without the risk of an IRS audit or of undervaluing your equipment. A past donation like a powered electric wheelchair to the ALS is something that can be handled through this process.  Make sure the appraiser is a Qualified Appraiser in the eyes of the IRS and that they regularly sign off on IRS 8283 forms. 

Now that you know what to expect, make an appointment with a certified equipment appraiser before making donations to that wonderful 501c3 that you've been wanting to help along. By knowing your equipment values and having a certified machine appraisal in hand, you're ready to make a change for the better in our world while documenting exactly what has changed hands.