General Practice, Solo & Small Firm DivisionMagazine
Volume 17, Number 3
DONATING USED COMPUTER EQUIPMENT
BY SHERYN BRUEHL
So, you've decided to donate your old office computers to a good cause, and perhaps get some tax benefits as well? You may find it more difficult than you think. As computer prices drop and software applications become more demanding, schools and charitable organizations are finding that donations of older used equipment are often more a burden than a blessing.
So if you've got 286- or 386-model computers to give away, your options will be somewhat limited, and may include such innovative ideas as these humorous suggestions from various computer-related forums: doorstop, boat anchor, end table, paperweight, aquarium (not a bad use for a monitor, if you're creative)-the list goes on.
However, if you have newer systems (at least a high-end 486, or preferably a Pentium-class computer), working color monitors, printers, modems, or networking components, there are local and national organizations that will accept and refurbish them for needy schools, charities, and individuals. Try the Detwiler Foundation (www.detwiler.org) or the National Cristina Foundation (www.cristina.org), for example, or check with charities and PC users groups in your area for local programs.What's In It for You
The benefit to you, other than that warm, fuzzy feeling? Well, it depends. According to Cathleen Jones of Norman, Oklahoma, a former IRS attorney now in private practice, the deduction for a charitable contribution of a business asset is limited to the lesser of its fair market value or the adjusted basis of the asset at the time of the contribution.
Or, in real-speak: If it has been completely depreciated, you get no deduction for the donation. To qualify as a business deduction, the donation must be business-related or have a business purpose. For example, a donation that results in some form of recognition for the donating business might be deductible as an advertising expense. If the donation clearly has no business purposes and is completely charitable in nature, the donation may result in a charitable deduction, which must be reported on a shareholder's or sole proprietor's Schedule A. (Consult your own accountant or tax lawyer for advice specific to your situation.)
However, if you have newer computer equipment to donate, you may be entitled to an enhanced deduction under the Twenty-first Century Classrooms Act. The benefit is available only to corporations (but not to S-corporations…now, who thinks that's fair?) who donate equipment to K-12 schools within two years of its date of original (new) purchase.
The language of the statute is confusing, but it appears that the donating firm can deduct its basis (depreciated value) plus one half the ordinary income (gain) that would have been realized if the computers had been sold at fair market value, but not more than the original purchase price of the equipment. The purpose of the act is to create financial incentives to donate near-modern equipment to schools, so it is not applicable to computers that were purchased used-a provision that may make it unavailable for lease-purchases, as well.
Another idea: If you've determined that there is no significant tax benefit in donating your older computers, or you can't find a school or charity equipped to handle them-or you just want to be nice-you might consider offering them to your employees for free or for a nominal charge. Or, set up the computers with basic e-mail capability for an older (or much younger) friend or relative who doesn't currently use a computer. Once again, however, be careful of expectations. Many programs designed for younger folks are very graphics-intensive and require more computing power than an older computer can handle, so the machine that is too slow for you to use may not be any more satisfactory for your children, and might just end up collecting dust in a new place.Legal and Ethical Questions
Whether you donate, recycle, or throw away your old equipment, you need to give some thought to the legal and ethical issues involved, and how to protect the security of the data on your drives and removable media (CDs, tapes, floppy disks). Simply deleting files from your hard drive (even if you empty the recycle bin) or deleting them from your media doesn't actually remove the data-it just deletes the computer's "map" to the data, leaving the actual information completely intact in most cases, and easily recoverable with modern technology.
At a minimum, you should reformat your hard drive to make recovery of that data more difficult. Some experts recommend that you go even further and "shred" the data to Department of Defense standards using any one of a number of shareware and commercial programs that can accomplish that (usually by writing over the data several times). Examples include:
- Eraser-shareware found at www.zdnet.com/downloads/utilities/file_utilities.html/.
- Sanitizer or Shredder-software from Infraworks Software (www. sanitizer.com or www.infraworks.com).
- Comparable programs from commercial utilities vendors like Symantec's Norton Systems line of software.
Other users take the additional step of removing and destroying the hard drive and other media-which, of course, substantially affects the value of the machine as a donation. (If you don't know how to destroy a hard drive, there are some very interesting approaches out there involving large magnets, sledgehammers, drills, high-powered rifles, and/or smelters). Or, you might simply keep the drives to protect their security yourself.
Before you decide to clean or destroy the drives, consider whether there is information that should be preserved. Your local bar rules may require you to keep copies of advertising, trust accounting, client records, etc., for a period of time. In the event of an IRS audit, or some other type of claim, you may want access to old financial records, tax preparation databases, and other documents (such as settlement agreements) that would document income, settlements, and expenditures.
You may also want to mine your files for good research, forms, and other precedents in old case files. While you may not want to retain the entire drive, you will need to take some time to transfer this information to your choice of media. Possible options include recordable CDs, tape drives, online storage, or even backing up the data to another computer on your network.
And finally, what about your installed programs? You may want to pass on some useful older versions of software to make your gift more valuable. Whether you can do that depends on the language of the software vendor's license (generally found in the manual, on the software package, or in a help file). Usually, your ability to do so falls into one of two categories. Either (1) you can't legally transfer it at all; or (2) you can, but only if you transfer all of the existing copies, disks, manuals, licenses, etc., and do not keep a copy for yourself. Something to consider, however: Many products allow you to upgrade based on your ownership of an older or competing product. For instance, if you installed an upgrade version of Windows 95 and have to completely reinstall it, you will need at least the first disk from your prior version of Windows to accomplish the installation. Some word processors and add-on programs have similar competitive upgrade protections.
So there you have it. It's not quite as easy as it might sound at first blush, but it is possible to make something more than storage-room wall sculptures out of your old computer.Sheryn Bruehl is a partner in the Norman, Oklahoma, firm of Bruehl & Chapman, P.C., where she practices workers' compensation law. She is a technology educator and advisor, and is active in the Oklahoma Bar Association, the ABA Law Practice Management Section, and the ABA General Practice, Solo and Small Firm Division. She can be reached via e-mail at firstname.lastname@example.org. She thanks attorney Cathleen Jones for her contribution to this article.