As we enjoy this month of Thanksgiving and head into the most wonderful time of the year, individuals and small business owners alike may also be contemplating ways to get a few more tax deductions before we ring out 2018 and pop the champagne to ring in 2019.
Charitable giving can translate into tax deductions as well as into good PR and great marketing strategies for small businesses. According to the US Small Business Association, an overwhelming majority (about 75%) of small businesses donate to charities every year. One reason why people want to shop from small businesses is that they believe they’re supporting someone like them who will in turn support causes close to them and give back to their community.
When small businesses establish themselves as people who are interested in philanthropy and giving back to their community, they earn favor with local shoppers. Additionally, charitable giving is a great way for small businesses to build alliances with other organizations and individuals and form networks with potential partners.
In order to make the most of your charitable giving from all standpoints: philanthropy, marketing, and tax deduction, it’s important to carefully choose the right organization to support.
First, for a small business with community ties, it’s important—and makes the most sense—to choose a local organization and one that is aligned in some way with your brand or product. Next, you can use the IRS’ search tool to confirm your chosen charity is a bona fide 501(c) (3) organization. This designation is necessary for your charitable donation to qualify for a tax deduction. You can also use the tools at Charity Finder to get further information on thousands of nonprofits including ratings and financial breakdowns.
What and/or how much do you give? Cash, volunteered services, sponsorship of an event, or donation of products and services are all considered eligible donations. Furthermore, the tax benefit you receive is based on how much you give in relation to your business’ revenue. You can give as much as you want, but only up to 50% of your AGI can be written off as charitable tax deduction. There are other exceptions depending on the organizations that limit contributions to 20-30% of your AGI. For more details and other rules, check out the IRS tax code.
Make sure to keep detailed records of charitable giving and retain receipts for your tax return.
Charitable giving can be a win all around for small businesses. Just make sure to follow these three simple rules: Determine your strategy, research the organization you’re donating to, and follow the IRS guidelines for giving.