Charitable contributions from your small business not only benefit the less fortunate but also allow you to receive a tax deduction. But what’s the correct approach for immersing your business into the world of philanthropy? Let us walk you through the steps of how you can give back the right way.
What Is the Right Cause to Support?
The question you should ask yourself is simple: What cause or causes are important to me? While it is essential to support a cause with enthusiasm, it should also correlate with your business in some manner.
Let’s say you’re a shoe store owner but you’re passionate about music education. Your business decides to support the local high school music program. While this is a noble gesture, without an explanation or backstory, customers will most likely be puzzled about your involvement. Instead, you could donate athletic shoes to the school’s sports program. That could give your business publicity in the school’s newsletter and other promotional material while still showing your support for education.
Research, Research, Research
Once you determine which cause to support, it’s time to pick a non-profit organization. While charities are supposed to be philanthropic in nature, several establishments have been ousted as scams. In a collaborative investigation, Tampa Bay Times and The Center for Investigative Reporting unearthed and complied the 50 worst charities in America. The groups on this list hired for-profit telemarketing companies to raise donations – a red flag for detecting fraudulent organizations. According to the findings, these charities gave less than 4% of their raised donations to direct cash aid, while a majority of the money went to the telemarketing companies.
This is exactly why it’s crucial to conduct extensive research before making any generous contributions. There are plenty of valuable resources to help you select a legitimate non-profit organization, including:
- Better Business Bureau’s Wise Giving Alliance
- American Institute of Philanthropy’s Charity Watch
- Charity Navigator
- Federal Trade Commission
Also, it might be beneficial to stick with a charity in your local community. You can personally meet with the program’s directors and staff, ask questions and gauge their reactions. Ultimately, listening to your gut is the best policy, especially when comes to donating your business’ finances or services.
How Do I Donate Correctly?
Once you choose your preferred charity, confirm they’re qualified to receive tax deductible contributions. Non-profits with a 501(c)(3) label are typically eligible, but you can always double check using the Internal Revenue Service’s search tool.
For cash or check donations, you must maintain records of your contribution and ensure it is paid in full by the end of the tax year. Generally, an organization should give you a written receipt acknowledging your donation, but you could use a bank statement as well. Also, you need to itemize your deductions via Form 1040, Schedule A.
Noncash contributions, such as pro bono services and property/inventory donations, must be documented on Form 8283. It’s important to note that you can’t deduct volunteered services, but you can write off any expenses incurred such as supplies.
There are limitations to your generosity, though. Under IRS guidelines, you can only make contributions up to 50% of your adjusted gross income. In some cases, it can just be 20% or 30%.