75% of small business owners make annual charitable donations. Are you one of them?
Business owners reap more than just tax benefits from making donations to charity. Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. has listed a few of them below:
COMMUNITY: Making a difference in your community where your customers and vendors live will increase your business’s social responsibility and overall reputation.
GOODWILL: Customers will be more likely to frequent your business if you support local organizations that are meaningful to them. It’s worth repeating that a strong reputation for social responsibility goes a long way within a community.
EMPLOYEE MORALE: Small business owners need dedicated employees. One way to attract and keep quality workers is to support a cause they care about. This can be through monetary gifts or donations of goods and services, as well as donations of time via employee volunteer programs (can you say, free advertising?).
PUBLICITY: Make a donation that requires a visible presence at a community event and your business gets publicity! After an event, you can post pictures online for even more exposure and to increase your business’s reputation for being socially responsible and active within your community.
TAX DEDUCTIONS: Some donations may be partially offset by a tax write-off. If you are going to deduct charitable donations, then make sure your accounting is correct and very organized. Do your research before making a donation because what you give and who you give it to can determine whether your donation is tax deductible.
Here are 8 tips for deducting charitable contributions according to the IRS:
1 – Give to a qualified organization if your goal is a legitimate tax deduction (donations to specific individuals, political candidates and organizations do not qualify). Click here to see rules on what establishes a qualification.
2 – You must file Form 1040 and itemize charitable deductions on Schedule A to receive the charitable contribution deduction.
3 – If you receive a benefit in exchange for the contribution, such as merchandise, goods and services, tickets to a concert or sporting event, etc., then deduct only the amount that exceeds the fair market value of the benefit you received.
4 – Stock and other non-cash property are valued at fair market value, as well. Household items and clothing must be in good used condition or better and vehicle donations have their own special rules.
5 – What is a fair market value? It’s the price agreed upon by a willing buyer and a willing seller should the property change hands. Both the buyer and the seller must have reasonable knowledge of all facts relevant to the property in question and neither can be required to buy or sell the property.
6 – Regardless of amount, you must keep backup for any monetary contribution, cash, check or other, which you plan to deduct. Acceptable backup includes payroll deduction records, bank records, or written communication from the receiving organization that includes the organization’s name, the contribution date, and the contribution amount. A telephone bill meets the record-keeping requirement for a text message donation as long as it shows the name of the organization that received the gift, the date of the gift and the amount that was given.
7 – Any deduction of cash or property over $250 must have backup documentation (detailed above in #6). The receiving organization must provide written documentation of any property contributed and whether the organization provided goods or services in exchange for the donation, if applicable. It’s possible for one document to satisfy all of the written communication requirements for monetary gifts as well as the written acknowledgment requirement for contributions over $250. If all noncash contributions for the year total over $500, then you have to complete and include IRS Form 8283, Noncash Charitable Contributions, with your return.
8 – if a donated item or group of similar items is valued at more than $5,000, then you have to make sure to complete Section B of form 8283 mentioned above in #7. It requires that a qualified appraiser appraise the property.