Charitable giving can potentially reward small business owners with a higher profile and lucrative tax benefits.
But owners need to be strategic in deciding whether it makes sense to publicly align with a particular charitable organization. You also need to keep detailed records and have an understanding of the rules set by the Internal Revenue Service (IRS) to get the full benefits.
Advertising Benefits for Your Business
Advertising can be very costly for small business, so why not maximize the dollars spent by helping a charitable organization?
Your small business can generate free advertising by issuing a press release anytime it donates money or time to a charitable organization. You can also utilize your company’s website and social media efforts to publicize donations. Other ways to get publicity include sponsoring a fundraiser or other types of events that will get your business’ name out in the community and news.
But you must be sure that any organization you affiliate with your business is reputable or your efforts could backfire in terms of publicity and tax deduction eligibility.
To take any type of tax deduction, you must donate to an organization that is a legitimate, public charity. Public charities include organizations such as religious organizations, educational institutions, publicly supported organizations, and private foundations.
Most legitimate charitable organizations operate under a federally-approved designation – section 501(c)(3). You can check Exempt Organizations Select Check, the IRS online search tool that allows users to search for tax exempt organizations and check certain information about federal tax status and filings.
How to Give to Charities
The following is some general information on different ways businesses can donate and guidelines on eligibility for tax deductions.
- Cash or other monetary contributions are tax deductible to an eligible organization if the funds are not directed to be used by a specific person. Your contribution must be made during the tax year to be eligible for a deduction.
- For donations that help advertise your business, like sponsoring a fundraiser, the cost of stationery and other expenses can be considered for a tax deduction. If you purchase an ad in a program for a charitable event, you can deduct the cost that is over the fair market value, which is the amount a consumer would pay in an open market.
- Physical property donations are a valid tax deduction, including business inventory. The amount you can deduct is the fair market value of the property. If you donate equipment from your small business which has been fully depreciated, you can't claim a deduction. For any non-cash charitable donation over $500, you are required to fill out IRS Form 8283.
- For volunteer hours, you cannot deduct the value of your service, such as the cost of an adjustment from a chiropractor. But you can deduct certain expenses incurred and related to your volunteer work, such as mileage for travel to the facility where you are providing the service. Note that you must be driving to the location only for the volunteer activity.
Keep Those Records for Tax Season
As a small business owner, you must have accurate records when you are preparing your taxes. By keeping these records, you are in a far better position if your business faces a tax audit.
Ask for a receipt for donations from the organization. A charitable organization is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75. The IRS says a donor is responsible for obtaining a written acknowledgement from a charity for any single contribution of $250 or more before a donor can claim a charitable contribution on his/her federal income tax return.