Charitable donations are good for everyone: they benefit the organization, person or society so they can continue to support their cause; they benefit you as a small business owner by providing a tax deductions; and they benefit your brand/business (which could be dozens of employees) as it “puts your money where your mouth is” and shows the company is willing to show up for the cause.
Here are some of the ways this can benefit your company:
Goods and Services
The value of your contributions is usually at Fair Market Value (FMV) and must be substantial in nature. An example of this would be the donation of inventory to a Good Will Store with a value of at least $250. Your company has some excess clothing in inventory that it purchased in bulk, but cannot be moved through a sale. These items can be placed up for a charitable contribution to a Good Will Store or used by an Outreach program for its clients who are in need of clothing in order to progress in their lives. Upon transaction of this donation, the organization will give a receipt to confirm the acceptance of the goods.
(This receipt should be attached to the bill of goods to verify the purchase, as well as the accounting transaction which reduces your inventory and records the contribution.)
Another example would be for services that you provide to the public. This is an excellent area to perform community service and also receive a tax deduction as well.
Many organizations frequently have events where low income persons assemble to receive services they could not afford or wouldn’t otherwise have access to. Your service would classify as a charitable contribution at fair market value and the organization would give you a receipt stating the value of these services for tax purposes. Any materials used as well would be considered deductions.
Other examples may include:
- donating scrap from your finished goods product
- unused fruit and vegetables
- a product that does not meet your standards and therefore could not be sold
Once again the fair market value rules apply.
Cash Contributions
This type of contribution is the most common and is the easiest to maintain. Per IRS regulations, a receipt is needed for any single contribution over $250 in order to claim the deduction.
Another method is planned giving to an organization. This can be done monthly, quarterly, or annually. Usually, pledge donations are made at events such as a Gala and paid throughout the year until the target has been met. As a self-employed person, this is a good way to plan your annual charitable deduction and maintain your cash flow reserves.
These are just a few examples of how your business can benefit the community, expand your marketing reach, and receive a tax break as well.
Consult our accountants for guidelines on your Schedule C tax forms as well as what limitations apply to these types of deductions.