What to Know When Your Small Business Makes a Charitable Donation

Charity Donation
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By , Small Business Pulse

Giving back to help those in need not only gives purpose to your work, but according to the Tax Policy Center, also offers tax incentives. However, your act of charity may not be going to where it is intended, and worse, it could actually land your business in deep legal trouble. When you are feeling charitable, pay close attention to what you need to know about business giving. Before you open up your wallet or set up automatic paycheck deductions for employees, or put on a corporate-sponsored event that raises money for charity, there are some things you need to be aware of to make the most impact for charity while legally claiming the tax exemptions at the end of the year.

Choose carefully
Make an impact by supporting a cause close to your company’s mission. What is the social impact of your gift? Get the most for your donations by determining what causes you want to help, and by involving employees and your customers. Make sure that whatever you donate goes toward creating that impact. What do you hope this money will do? Do you want it to simply raise awareness or to go directly to those you are wanting to help?

Consider where your passion lies. Do you want to give toward finding a cure for a disease, helping those in poverty, feeding the hungry or giving a boost to a religious organization? Do you want to make an impact with the civil rights movement, neonatal mortality issues or pro-life organizations? Do you want to beautify spaces or turn the planet green? Whatever your passion is should be where you look first to donate your money. There are many great organizations for your company to donate. The Center For High Impact Philanthropy has put together a free guide that offers a list of charitable places to give.

Is the charity legitimate or legal for tax exempt donations?
Not all charitable contributions are tax deductible. Only gifts made to organizations that have obtained 501(c)(3) tax status are legal to deduct. Make sure the organization is legitimate, and be sure to thoroughly research any organization before sending your money their way. Do a quick Google search and review Charity Navigator to check out the organization before you give. If the non-profit comes up with investigations or other red flags, think twice.

According to the IRS, donations are tax deductible when given to qualified religious, government, educational, war veterans groups and non-profit organizations. Calculate the fair market value (FMV) before claiming any donation. They are not tax deductible when given to individuals, political groups or candidates, professional groups like lawyers, blood donations, raffles, dues or fees that belong to a club or similar groups, or any for-profit organization. You also may not claim the value of your time given for your services.

Record keeping
One of the most important factors in legally donating or accepting donations for charity is to understand your limitations and always keep excellent records. Not only is it a good business practice, but if you are ever audited, you will have proof that your donations were given legitimately. There are limits to donating as well. For instance, no more than 50 percent of your income may be claimed as a tax deduction.

All charitable contributions must be itemized using IRS Form 1040. Clothing or household items must be in good condition, and the donation may not be in exchange for goods or services for which you benefit. To receive a donation, you must keep a bank record, payroll deduction record or written communication from a charitable organization that includes the date and the amount. If the donation totals more than $250, you must also include a description of the property contributed and any portion of it that was given in exchange for a gift. Additionally, IRS Form 8283 is required for contributions of more than $5000.