Getting Back When You Give


Charitable donations can help your business establish a good public image, provide networking opportunities with other charitable businesses in your area and lead to beneficial relationships within the community.

Caron Beesley, an online community moderator for the Small Business Administration (SBA), states that “according to a 2010 philanthropic study by Cone Communications, 85 percent of consumers have a more positive image of a product or company when it supports a cause they care about.”

Charitable donations can help your business establish a good public image, provide networking opportunities with other charitable businesses in your area and lead to beneficial relationships within the community.Cashing in on tax write-offs for your donations is an added bonus that can make charitable giving more affordable on the tight budget of a small business. Here are some things you should know about what types of donations are eligible for a deduction and how to claim them.

Many small-business owners are likely aware of the fact that donations made to qualified organizations may be tax-deductible; however, the specifics about which donations are eligible and how to receive the write-offs are less well-known. It is important to be mindful of the details and restrictions before donating, because not every charitable contribution will earn you a deduction.

First and foremost, donations must be made to qualified charitable organizations.

“These include, but are not limited to, churches, nonprofit organizations such as a volunteer fire company, a foundation or trust fund, or any other organization ‘operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals,’” says Beesley.

These organizations will typically have federally approved, tax-exempt 501(c)(3) status. The IRS has provided an online search tool to help your business seek out qualified organizations, which can be found here.

If the organization meets these standards, then your donation may be eligible for a deduction against its annual tax liability. The SBA cautions that the IRS rules regulating these deductions are complex, however, so it is advisable to discuss them with your financial advisor and refer to the IRS’s online resources.

Here are some rules regarding the different types of donations:

Cash

If a monetary contribution is set aside for a specific person, it can’t be deducted. Deductions must also be made in the same year as the contribution, regardless of the fiscal year that your business has established.

As a general rule, up to 50 percent of adjusted gross income can be deducted; however, there may be 20 and 30 percent limitations. It is necessary to itemize each deduction and fill out Form 1040, Schedule A.

Property and business inventory

The fair market value, essentially the price a consumer would pay for the goods in the open market, is used to assess these donations. The deductions are typically limited to 50 percent of adjusted gross income. If the donation exceeded $500 in value, then a Form 8283 must be filed, which can be found here.

Volunteering

The value of service is one of the main things that can’t be deduced; however, some expenses incurred while volunteering are eligible. These include the costs of hosting a fund-raiser, supplies, uniforms, telephone use and stationery.

One large caveat is that any benefit you receive as a result of the deduction must be noted and subtracted from the amount sought. For example, if you win an item at a charity auction, the total price you paid minus the value of the item will be the amount that you can claim for a deduction.

It is not enough to itemize each contribution; it is also necessary to give proof to claim them and to protect yourself in the event of an audit. The exact type of proof required varies depending on the type and amount of the contribution. The IRS provides the guidelines online here.

Cash contributions of less than $250 have the simplest requirements: a record that includes the name of the organization, date and amount. These records can include a written receipt, credit card statement, canceled check or bank statement. Payroll deduction statements can also be given as proof, but there are rules regarding this process, which are described by the IRS here.

According to the IRS, “You can claim a deduction for a contribution of $250 or more only if you have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records.”

For the details on documenting all other contributions, it is helpful to maintain a copy of the IRS guidelines and talk to your accounting or tax professional.

 

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