This is the time of year for giving! It’s also a time when small businesses are also thinking about tax deductions. Charitable contributions and tax deductions go hand in hand but you have to be aware of the nitty gritty!
In addition to the tax deduction and the good feeling from being charitable, it also reflects positively on the business! The community, potential customers, and your employees, have been proven to view philanthropic businesses more favorably.
How do you make charitable giving work for your business?
First, do your homework and make sure the organization qualifies for a deduction. Did you know that only certain ones qualify? Eligible charities are 501(3)(c) and can be found using the IRS search tool: https://www.irs.gov/charities-non-profits/exempt-organizations-select-check.
Second, determine the type of charitable donation. Are you going to give cash, volunteer your services, donate inventory, or sponsor a certain event? Know that there are limitations with each of these categories. If you want to volunteer your services, only the expenses incurred are deductible not the actual value of the service you provide. If the organization gives you anything in return for the deduction be sure to reduce the value of your gift by the value of the item received. It’s always good to review Publication 526 so you are aware before you give. https://www.irs.gov/publications/p526/ar02.html#en_US_2013_publink1000229693
Third, be sure the donation is paid, services provided, or items donated before the end of the year. Then be sure to keep all records provided to you by the organization. Save these with the year’s tax documents in case there is ever an audit. If services were provided and you purchased supplies, be sure to save the receipts and any other supporting documents. Then take your deduction but remember the IRS limits deductions to 50% of your adjusted gross income (AGI) and some are only deductible to 20% or 30%, so know the guidelines!
Charitable donations are such a great way for small businesses to help their community and get a little something in return. Everyone involved benefits! Just do your research before you give and make sure it’s something close to your heart.
Jordan Ilderton, CPA