How to Record a Charitable Donation of a Gifted Item in QuickBooks
A bookkeeper's guide to recording a small in-kind donation in QuickBooks when the item was a gift, with the accounts to use and the tax caveats.
A client gives an item to a charity auction. The item was a gift to the client, never a purchase, and its value is an estimate. We see this question often, and QuickBooks handles it with a journal entry or two. The real decision comes first: whether the item ever belonged on the business books.
Was the item ever a business asset?
If the gift went to your client personally, the business never bought it, sold it, or used it. Nothing about it is on the books, so nothing needs to leave them. Donating personal property is usually a personal matter at tax time, not a business expense.
Many owners still want the donation on the record. That is reasonable, and the entries below do it cleanly. Pick one route and note the choice in the memo.
Which accounts do you need?
Two accounts cover this. Create an expense account named Charitable Contributions for the debit side. For the credit side, use an equity account such as Owner’s Contributions, assuming a sole proprietorship or partnership.
The simple route: one journal entry
Record one journal entry dated the day of the donation. Using a $30 estimate as the example:
- Debit: Charitable Contributions, $30
- Credit: Owner’s Contributions, $30
The item passes from the owner, through the business, out to the charity, and both legs show on the reports. In QuickBooks Online, select New and then Journal entry. In QuickBooks Desktop, use the Company menu and choose Make General Journal Entries. Put the charity’s name in the name field of the expense line so vendor reports pick it up. Add a memo naming the item, the event, and how the value was estimated.
The fuller route: a clearing account
Some firms prefer a visible audit trail. Create an other current asset account named In-kind Items or something similar. When the gift arrives, debit that asset and credit Owner’s Contributions for the estimate. When it leaves for the event, debit Charitable Contributions and credit the asset. The account zeroes out, and each leg carries its own date and memo. Booking both routes double counts the donation, so choose one and stay consistent.
Does tracked inventory change the entry?
If the donated item came from stock you sell in QuickBooks, the mechanics change. Relieve the inventory quantity first, with a credit memo or an inventory adjustment depending on your workflow. Then reclass that cost into Charitable Contributions with a journal entry. A one-off item the client never tracked needs none of this.
How much can the client actually deduct?
The books can carry an estimate; the tax return is stricter. Property someone received as a gift and gave away soon after is often deductible only up to its basis, meaning roughly what it cost the original giver. Its estimated value today may not be the deductible number.
Substantiation has thresholds too. A single contribution of $250 or more needs a written acknowledgment from the charity, so this one does not. Keep the receipt and a short valuation note anyway, attached to the journal entry. Entity type and the owner’s situation set the final figure, so leave that call to the tax preparer.
Set up the expense account, book the single entry, attach the receipt, and note the valuation. Two minutes now saves a scramble when year-end questions arrive.