Donating to charities and 501(c)(3) organizations are a great way help your community as a business person. Giving back is one of the major responsiblities of a business. As the business owner, you can make donations directly from the business account. In order to be tax deductible, donations must meet certain requirements. Especially for your business, tax deductible donations must meet these requirements.
Give To Qualified Organizations
Firstly, your donations are tax deductible if made to a qualified non-profit organization. For example, these donations would be going to established charities or non-profit organizations. In some cases, the organizations might include research groups, community groups or university departments. Of course, a qualified organization will make your tax deductible donation more legitimate than giving to an unregistered individual or political group. To make sure your donation is tax deductible, double check the status of the organization.
C Corporation Status
In addition to a qualified donor organization, your business must be a partnership or C-Corporation entity. The C Corp status allows companies to make direct tax deductible donations from their bank account. Since the C corporations are considered stand-a-lone entities, they are eligible to make tax deductible donations. Otherwise, all other types of business structures, including sole proprietorships and single member LLC’s, will end up reporting the donation on the personal 1040 federal return under Schedule A. To be clear, for the most part, only C corporation businesses can make tax deductible donations.
Cash or Check Donations
As a C corporation, your business can donate to a charitable organization via cash or check. Of course, the proof of check is stronger because it is tied back into the bank statement. However, proof of donation should be enough, even in an IRS audit. If you decide to have your company donate cash, the receipt can serve as proof of donation. With the required proof, the donations is tax deductible for the same year in which it is made.
Property or Equipment
Next, your business can donate property or equipment for a tax deduction. The property must be carefully and fairly valued. Typically, these donations are above the value of $500 like business furniture or larger. For example, if your company upgrades it’s fleet of vehicles, the donated vehicles must have a value over $500 each. Once again, the proof of donation must be kept. The value is then deducted from the company’s tax return.
Supplies For Volunteer Service
The supplies bought for volunteer hours are a tax deductible donation. Although your company can’t claim for hours donated during volunteering efforts. The supplies and materials bought for volunteering are eligible for a deduction. The next time that your company gets together to volunteer in the community, be sure to track all of the supply expenses. It one of the best company culture ideas to start working on. The receipts will serve as proof of donation for a tax deduction.
Certainly, tax deductible donations are a great incentive for businesses to give back to the community. They provide a financial incentive as long as the company has a C Corporation status. Otherwise, there is still a deduction on the personal income side. However, for the business to complete a tax deductible donation, it must meet a few of the requirements in this post.