Charitable Giving and Tax Deductions: A Business' Guide

  • Tax Authorities
  • 23.06.2021 06:31 pm

You want to make sure that your business's charitable donations are as tax-effective and efficient as possible. That's why we created this guide to help you navigate the complicated world of giving back while also taking care of yourself and your company.

We'll walk through how to find charities with good track records, how much should be donated each year, what types of donations qualify for deductions, and more. This guide will give you all the information you need so that when it comes time to donate money or goods, it won't feel like a chore but instead an opportunity to do something great in your community while also saving some money on taxes.

Why should my business do more when it comes to charity donations?

Besides the obvious benefits of helping out an organization or cause in need, charitable donations will also engender greater relations between your organization and your customers.

Donating money for a cause that's important to your customer base will give back and show them that you care about what they care about. It will be an opportunity for them to see that you are committed and invested in making a difference in their lives.

Helping others is good for your business. Studies show that employees who volunteer feel more engaged with their work, leading to them being more productive at work and happier overall. Plus, donating helps build relationships with other organizations in your community.

The best ways to give to charity

Simple tax-deductible donations (more on that later) are still common, but if you want to maximize the exposure of your contribution to your target audience, other methods will attract more attention online, including:

  • Volunteering: This is the best way to get boots on the ground and maximum exposure. It is also an excellent opportunity for your employees to work together on something meaningful while building camaraderie among themselves. It's also an opportunity for them to learn more about their community and to connect with people.

  • Charity drives: You can organize a toy drive, collect non-perishable food items or even donate money to a charity of your choice. These charitable donations will impact people in need and show that you care about making the world better for everyone. The best is this method allows you to involve your customers and clients in the activity as well.

How to check if charity organizations are legitimate

Unfortunately, many scammers are using charity as their method to tug on the heart (and purse) strings of their potential victims. Before donating your time or money, be sure to check that they are a registered charity organization. 

The IRS maintains an online database where you can check whether an organization is a registered charity and if your donation will be tax-deductible. You should also keep in mind that not all charities are eligible for tax deductions, so it's essential to do some research before making any donations.

The best and most effective ways to give to charity and claim tax deductions

Unfortunately, giving to charities and claiming it on tax is not that simple. First, you need to determine if the charity is registered with the IRS. Even then, the Tax Cuts and Job Act of 2017 made it harder to claim tax deductions for charitable giving.

Donor-advised funds are a great way to get around this change because they allow you to make a donation now and then decide later which charity the money should go towards. This is especially helpful if you're not sure what your favorite charities need right now or if you want to help out multiple organizations at once.

Three types of charitable donations can attract tax deductions, including cash, gifts of property or equipment and travel expenses accrued (14 cents per mile travelled) when helping a charitable organization. 

One of the most important things is knowing what type of donation will get you the largest deduction for charitable contributions. For example, if you donate clothing to a homeless shelter, your deduction would be based on fair market value rather than new value. There are many other IRS rules to follow, including:

  • The IRS requires all donations over $250 to be documented with an official letter from the charity

  • You can deduct up to 50 per cent of your adjusted gross income for cash or property donations if they exceed 2 per cent of your AGI.

  • Contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations are limited to 30 per cent of your AGI.

  • A non-cash charitable deduction of $500 requires you to fill out a Non-cash Charitable Contributions form 

It can be challenging, but many online resources include the IRS' detailed tax code and online calculators to assist. You should always consult with an accountant before making any decisions about donating to charity to know what type of contribution is best for your situation. 


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