When something sounds too good to be true, it probably is. No, buying a Rolex is not a deductible charitable contribution.
Why do people think buying a Rolex is tax deductible?
Rolex watches are made by the Swiss company Rolex SA, but the company is wholly owned by the Swiss charitable organization Fondation Hans Wilsdorf. Hans Wilsdorf was the founder of Rolex, and he left all of his shares in the company to the foundation. The foundation aims to keep the company running, provide for the founder’s nieces and nephews, and further other charitable activities.
Because Rolex is owned by the Hans Wilsdorf Foundation, people argue that makes Rolex non profit and buying a Rolex is a charitable contribution.
Is Rolex a qualifying charitable organization?
Rolex and the Fondation Hans Wilsdorf are not qualifying charitable organizations for two reasons.
First, donations to foreign organizations are generally not deductible. The primary exception is certain Canadian, Israeli, and Mexican charities per tax treaties with those countries. In this context, foreign means where the organization is legally based, so an American charity that uses the money abroad can still be a qualifying charitable organization.
Second, the organization must be organized and comply with an eligible section of federal not-for-profit law. A 501(c)(3) charity is the most common example. The law generally bars a qualifying organization from sharing its earnings with any private shareholder or related individuals. The fact that the Fondation Hans Wilsdorf provides funds to family members means it almost certainly wouldn’t be a qualifying charitable organization.
It’s not a charitable contribution if you receive something in return.
Even if Rolex were a qualifying charitable organization, you wouldn’t be able to deduct the purchase price of the watch. When you receive something of value in return for your contribution, what you’ve really done is made a non-deductible purchase.
The exception to this rule is if you overpay. In that case, you wouldn’t be able to deduct the fair market value of what you received, but you could deduct the overpayment.
In the case of Rolex, if you buy a watch for $10,000 at retail, the fair market value of that watch is considered $10,000, and you receive no deduction. However, if you bought that same watch in a charity auction for $15,000, you could use the retail price to say that you only received $10,000 in return and can therefore deduct the extra $5,000 as a contribution to the charity.
What if a buy a Rolex through my business?
To be deductible, a business expense has to be ordinary and necessary. For example, a restaurant has to buy plates and forks for its customers to eat with, so it can deduct the plates and forks.
It would be virtually impossible to argue that you need a Rolex to operate your business. While a business may need a timekeeping device and doesn’t have an obligation to go with the cheapest item, a Rolex would still likely be out of the ordinary.
If you were to buy a Rolex to give to an employee as a gift or bonus, it would likely be deductible to the business a compensation expense but taxable to the employee as income.
In short, buying a Rolex is not a clever way to receive a tax deduction.
What about deducting an Apple Watch?
An Apple Watch is also generally not going to be tax-deductible. First, Apple is clearly a for-profit company, so the non-profit arguments don’t even come into play.
When it comes to claiming an Apple Watch as a business expense, it’s very hard to do. A watch is primarily a personal item. You may have an argument IF you have a very strong business need to use the features on an Apple Watch. Even then, you may need to split the purchase price and data plan between personal use (non-deductible) and business use (potentially deductible).
Frequently Asked Questions
You can’t write off a watch you bought from a non-profit because you get benefit from the watch. The exception is any amount you paid above the fair market value of the watch which could be considered a donation.
The most common way is if you’re buying watches for your employees and write the watch off as a compensation expense.
A watch usually isn’t a business expense since it’s an item of clothing you can use in your everyday life. A watch with special features for business use may be a business expense.
In order to be tax-deductible, a watch should be a proper business expense or employee compensation.