Business owners record the cost of their physical assets on their books for a variety of reasons. The cost is important for income tax reasons since it is depreciated or deducted over a period of years. In Maryland, the assets of a business, and their costs or values, are reported annually on a Personal Property Tax Return filed with the State. Recording the cost of an asset is also important for insurance reasons in case of a claim, because the value will have already been substantiated and reported to an outside third party such as an Accountant, an insurance agency or a tax authority.
Recording the value of an asset that was acquired by gift or donation poses a challenge. Since there is no cost associated with the asset, the question arises if the item needs to be recorded at all. The answer is yes.
When recording the value of an asset received by gift or donation, you may use the cost of shipping or transporting the item to your place of business, if you were the one transporting the item. This is usually a nominal amount. However, it will establish the item on the business’ books, as well as the date acquired and that the item was used in the operation of the business. This is important for computing any taxable gain, if the item is sold later. It is also important in the cases of fire, theft or flood damage because many insurance policies have replacement cost coverages in force. Having even a nominal value recorded for gifted or donated item is better than having no record at all!