Small Business Guide to Charitable Giving and Tax Deductions

 Here's what you need to know about charitable giving and business tax deductions.Charitable contributions from businesses to nonprofits can qualify for tax deductions.Donate to charity because you feel a connection to an organization, not because you want a tax deduction. There's more to charitable giving than receiving tax benefits.When it comes to the paperwork and tax requirements for charitable contributions, it's often easiest to speak with a tax advisor.

As summer closes and the holiday season draws nearer, many businesses look for ways to give back to their communities, such as through charitable contributions.Many businesses celebrate the holiday season or ring in the new year with a gift to charity. That gift can come in many forms, from volunteering at a soup kitchen to donating a few thousand dollars to a local charity. It's a simple act of kindness that benefits the community and helps brands build goodwill.

But for small businesses, donating to charity can also bring a handful of difficulties and potential headaches. If your business wants to give to charity at any time of the year, it's crucial to follow a few guidelines.

Benefits of donating to a charity

Businesses experience a multitude of benefits when they donate to charities. Before selecting your preferred charity, research causes that are likely important to your customer base. For instance, kid clothing retailers may find customers respond positively knowing that part of their payment goes to a pediatric charity. The following are just a few select benefits a business can garner by routinely donating to charity.  

Connecting with your community

Let's start with the basics. There are a few reasons why your business should consider donating. Charitable giving is good PR, and it makes sense for business, especially for small businesses that depend on their communities to keep them afloat.

"What distinguishes small business from large-scale corporations is the connection with the community," said Kristen Fusaro-Pizzo, owner of Bath, Body, Candle Moments. "People want to … shop at a small business because a small business cares about them as individuals and the causes they care about."

aritable giving demonstrates that you give back to the community and are in business for more than profit. As a small business, while you don't get as large a tax deduction as big corporations and enterprises do, don't overlook the other benefits of philanthropy.

As a single-store retailer, it is important for us to give back to the community," said Brad Schweig, vice president of operations for Sunnyland Furniture. "There isn't really any tax benefit for us, so it comes back to being a part of our community. We do think it helps us from a marketing standpoint, as we want people to know that we are local, our team is local, and we support making our local community a better place."

Building your network

Charitable giving is also a way to build alliances with other organizations and network with individuals who are potential partners. Donating to a local organization can be the start of a long-lasting relationship. [Read related article: 6 Ways to Get Involved in Your Local SMB Community]

"Develop an ongoing relationship with the charities you support," said Kris Putnam-Walkerly, president of Putnam Consulting Group, a philanthropic advisory firm. "Don't limit giving to the end of the year. Talk to the nonprofit about ways you could help year-round, such as volunteering, sponsoring events and inviting the charity's CEO to speak to your local business associations. And remember, this is a two-way relationship. Ask the charity if there are easy ways they could publicize your support, such as in their donor newsletters."

Additional benefits

Improved team morale is another area in which businesses benefit by donating to charitable organizations. Company culture is important to future and current staff, and your workers will feel good about working for a company that gives back.

Customers are also likely to feel good about supporting a company that donates to charity. According to Squareup, giving back boosts a company's image and leads to a more loyal customer base. Further, your brand image is improved because charitable giving demonstrates corporate responsibility. According to the Center for Social Impact Communication, millennials place great importance on corporate social responsibility.  

Donating to organizations that fit your business's values

To make the most out of your donations, first of all, pick the right organization to donate to. For a small business that's tied to the community, it often makes sense to pick a local group.

"We try to focus on smaller local groups versus nationwide organizations, since these are the ones that the bigger companies seem to miss," Schweig said.

If there's a national charity that ties to your company's values, that's always an option as well. You want to find an organization that best fits with your business's values.

When seeking out an organization to donate to, take adequate time to select one. Making contributions to charities and organizations that truly mean a lot to your business is better than just doing it for the sake of making contributions. Put sufficient time, effort and energy into choosing the right organization for your business to support.

You may find two or three organizations that fit your business's values. If that's the case, don't shy away from providing charitable contributions to multiple organizations. Building a relationship with and supporting multiple charities is a good idea. It gets your business involved in your community while also building strong relationships with great charitable organizations.

Ways to donate to charity

There are various ways that a business can donate to charity. Although monetary donations are commonplace, there are other options. The following are a few top ways companies are supporting charitable organizations:

Volunteer: Instead of a monetary donation, companies can donate their time to a great cause. Volunteer as a company at a soup kitchen, charity run or homeless shelter.

Sponsor a sports team: Youth organizations are always looking for businesses to sponsor their teams. Donate funds towards field upkeep and uniforms. Companies that sponsor teams can have their names displayed on unforms or field signs.

Launch a charity drive: Start a collection for a particular cause. Your company can collect non-perishable food items for distribution at food banks. Toy drives are popular around the holidays.

Donate online: Set up automatic donations through virtual giving platforms. You could even leave out a collection jar at your place of business and cash in the collected amount to send through an online portal.

How to make charitable tax deductions

There are tax benefits when your business donates to charity. For your donation to qualify for a tax deduction, your chosen charity needs to be a bona fide 501(c) (3) organization. Use the IRS's search tool to confirm the group is registered. You can search by state, which helps you quickly find your charity of choice to confirm whether you are eligible to receive a tax deduction.

It's important to note that the Tax Cuts and Job Act of 2017 made it harder to claim tax deductions for charitable giving. There are ways to get around this change, however, including the use of a donor-advised fund. A donor-advised fund allows you to donate enough money upfront in one year to become eligible for tax deductions while the donor-advised fund holds on to the money. You can then distribute the money from the fund over several years if you want to make more regular donations. 

Sound complicated? It can be if you're unfamiliar with the regulations. It's not a bad idea to speak with financial experts for advice on how to donate to charity in a way that makes sense for your business. It's easier to file your taxes at the end of the year when your tax advisor helps with your tax return. 

"As far as looking for advice somewhere, I honestly believe [small business owners] should be talking to their tax advisor," said Kathleen Adams, partner at Signature Estate & Investment Advisors LLC. "It's too complicated right now. People have a lot of misconceptions. They come to me all the time with things they've read on the internet. This isn't the year to do that."

Before speaking to a tax advisor, there a few basic things you can learn about charitable deductions. Businesses should know the three types of charitable gifts that can be deducted:

As for cash contributions, the Tax Cuts and Jobs Act raised the maximum donation to 60% of your adjusted gross income.



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