How to Get Charitable Tax Deductions for Your Small Business

by Suzanne Kearns

4 min read

According to the Atlas of Giving’s 2013 annual report [PDF], Americans gave a record $416.7 billion to charities — a 13 percent increase over 2012. Corporations were responsible for just over $20 billion of those donations. From a business standpoint, giving is smart. A study [PDF] conducted by Cone Communications found that 90 percent of those asked said they would be more likely to trust and be loyal to a company that supported a cause. In addition to increasing customer loyalty, certain types of charitable donations are tax deductible for your business. Here’s what you need to know to make sure your charitable giving can be deducted from your tax bill.

Is the Charity Eligible to Receive Tax-Deductible Contributions?

Not all charitable organizations have a tax-exempt status with the IRS. Here are the types of organizations that are likely to be qualified.

  • A U.S. community chest, corporation, trust, fund, or foundation that is operated for charitable, religious, scientific, or educational purposes, or for the prevention of cruelty to children or animals
  • War veteran organizations
  • Fraternal societies, orders, and associations operating under the lodge system
  • Nonprofit cemetery companies or corporations — as long as your contribution is not used for a specific lot or mausoleum crypt
  • Any government state or tribe that performs substantial governmental functions (your donation will be deductible only if it’s used solely for public purposes)

Before you make a donation, check to see if the organization is recognized by the IRS as eligible to receive tax-deductible donations. In addition, you’ll want to ensure that it hasn’t had its tax-exempt status revoked for not filing the proper paperwork. You can search for specific organizations on the IRS’ Select Check system or download Publication 78, which provides a complete list of qualified organizations. If a charitable organization is not on the list, you can’t take a tax deduction for a donation to them.  

Is Your Method of Giving Qualified for a Deduction?

The IRS doesn’t recognize all forms of giving as deductible, even if your donation goes to a tax-exempt organization. Here are some of the guidelines. For complete rules, see IRS Publication 526.

  • Money or property that is donated to a qualified organization is deductible. The money must be intended for the organization and not a specific person.
  • You typically cannot deduct more than 50 percent of your adjusted gross income for charitable contributions. In some cases, the limits are 20 to 30 percent.   
  • You can deduct the fair market value of property at the time of the donation.
  • If you volunteer your time, it’s not an allowable deduction, but any expenses that you incur in the process are. You cannot deduct your lost wages while you work as an unpaid volunteer.
  • If the organization gives you something in return, such as tickets to a show, you have to subtract the fair market value of the gift from your donation, and only deduct the difference. For instance, if you give a $100 donation to a charity theatrical event and were given a ticket to that event worth $25, you would only be able to deduct $75 of your donation.

Keep Proper Records

The IRS has strict rules about record keeping for charitable donations.

  • If you donate cash or write a check, you’ll need a record of the transaction. You can use your bank account statement or a receipt from the charity.
  • If you donate $250 or more, you’ll need to get a letter from the organization that states the amount of the donation and a description of what you gave. If you received anything in return, the letter must give a fair market value estimate of it.
  • If you donate any type of property, you can deduct the fair market value. To determine that value, see IRS  Publication 561.
  • If you make a noncash contribution of more than $500, or a noncash property donation worth less than $5,000, you must fill out form 8283 [PDF] and attach it to your tax return. If your noncash property is worth more than $5,000, you’ll still need to fill out form 8283, and you’ll also have to get a qualified appraisal of the property. If it’s worth more than $500,000, you’ll need to attach the appraisal to your return.
  • Your donations are only deductible if you itemize them on Form 1040, Schedule A [PDF].

If you haven’t yet decided on a charity, check out Charity Navigator, Charity Watch, or the Better Business Bureau’s Wise Giving Guide.

Some small-business owners hesitate to promote their giving because they’re afraid it will seem contrived. But the Cone Communications study cited above found that most U.S. consumers are more likely to purchase brands that are associated with a charitable cause. So go ahead. Give to your community, get a business tax deduction — and use your giving to build trust and loyalty among your customers.

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