First Federal Bank Blog

Donating to a tax-deductible charity can boost your small business in a variety of ways. It lets you give back to your community, support causes that are important to you, and create a positive image for your company. Depending on how much you donate, your business could enjoy tax perks as well. Here are some tips to keep in mind as you choose a charity for your business to support:
 
Confirm the charity’s IRS qualifications
 
Donations are only eligible for a tax deduction if they’re made to an IRS-qualified organization. According to the IRS, qualified groups typically must be organized and operated, “only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.” To quickly determine if an organization is qualified, you can ask the group itself or use the IRS’s online search tool.
 
Know tax deduction requirements
 
If the charity you’re donating to is qualified, there are other standards your business must meet as well to receive a tax deduction. According to The Balance's Jean Murray, pass-through small businesses (such as sole proprietorships, LLCs, and partnerships) can only deduct charitable donations if they exceed that tax year’s standard deduction amount. In addition, most donations can’t exceed 60% of your business’s adjusted gross income. Certain other donations are subject to 50%, 30%, or 20% rules. Corporations are limited to 10% of their annual taxable income, but donations can be carried over. Consult your tax professional for advice specific to your situation.
 
Consider non-cash donations
 
You can donate more than just money to the charity of your choice. Business property and equipment are eligible as well, and you can generally deduct the gift from your taxes at fair market value. You can also deduct travel expenses that your business incurs while helping out a charity. However, if you volunteer for a group, it’s important to note you can’t deduct the value of your time.
 
Prioritize security and legitimacy
 
When choosing a tax-deductible charity, be sure to do your due diligence before making any commitments. Business News Daily's, Bennett Conlin recommends being on the alert for email phishing scams and illegitimate requests for donations. In addition, he suggests checking out groups using online charity assessment tools and simple Google searches. This can help you avoid organizations that are poorly managed, ethically challenged, or under a cloud of scandal. It’s also a good way to avoid associating yourself with a group that might reflect poorly on your business.
 
Put your business’s finances first
 
When donating to a tax-deductible charity, it’s important to put your business’s wellbeing first. According to Conlin, donation amounts that strain your finances or disrupt your cash flow should be avoided. To protect your business, it’s also a good idea to keep detailed records about any donations you make. Be sure to seek out professional assistance with these matters as well, because rules for claiming charitable tax deductions can get quite complex.
 
As your business decides how to spend its charity dollars, start with these pointers to plan effective tax-deductible gifts that will benefit everyone involved.