Every year, I make a few trips to my local Goodwill store to donate clothes and household items. One of the benefits of making these donations is a personal tax write-off for the value of the donated items.
When business acquisitions occur, another type of goodwill is created — a kind of goodwill that people prefer not to write off. Generally Accepted Accounting Principles (GAAP) require that the amount of purchase price remaining in an acquisition after one has allocated value to all of the other tangible and identifiable intangible assets acquired be recorded as goodwill. “Donating” to this goodwill — a.k.a., overpaying for an acquisition — does not carry the same charitable benefits as giving clothes to your local Goodwill (although the owners of the selling company may appreciate the “charity”).