Businesses everywhere donate to charitable organizations every year. After all, it’s a great way to contribute to society and it’s probably tax deductible. Timesheets.com, for instance, donates to organizations like the Jane Goodall Institute, The African Wildlife Foundation, The Humane Society of the United States, and others. Did your business donate to a charitable organization this year? If so, you may be able to claim a deduction if you donated to a qualifying 501(c) 3 organization. The IRS states that you can deduct contributions given to any religious, charitable, educational, scientific, or literary organization. If you donated to any of the organizations listed above, you may be eligible for deductions. Here’s your guide to understand your contributions and tax deductions:
Reasons to donate
The reason businesses donate to non profit organizations varies. For instance, some people donate because they want to help society and make an impact on the community. Meanwhile, other businesses use donations as a way to foster customer satisfaction. Businesses can set themselves apart from the competition and become more likable if they support a cause that their customers believe in. Most businesses donate to a cause that is relevant to the company’s product. For example, a restaurant may donate to a program that funds children’s lunches at a local elementary school. As a result, customers are happy that they are supporting a relevant community. Whatever the case may be, tax deductions are available to any business that donates to a qualifying organization.
Ways to donate
- Money donation: One of the most popular forms of donation is a money donation. Businesses can donate any amount of money to a qualifying organization. Some businesses even match employee’s donations.
- Provide inventory: A business may give items like food, clothing, toiletries, and other items to an organization. For example, a restaurant may donate food to a shelter.
- Volunteering: Businesses occasionally ask employees for volunteers to work at a certain events to help those in need. For instance, a company may volunteer their time at a local food bank.
- Services: Some businesses donate their skills to help those in need. Layers might offer legal advice while some dentists volunteer cleanings.
Deduction qualifications can be quite complex, which is why the IRS provides contribution guidelines on form 526. Form 526 explains contributions that you can and cannot deduct, as well as other important information about charitable contributions. You will need to find out about when to deduct your donations, donation limits, proper record keeping practices, and more. In general, you can deduct contributions of money or property that you make to any qualified organization.
Deductible Charitable Organizations
- Religious organizations such as churches and temples
- Federal, state, and local governments. Your gift must be solely for public reasons. For example, giving money to fund a local community garden
- Nonprofit schools and hospitals
- Private organizations including: Boy Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America, Goodwill, American Red Cross, CARE, and the Salvation Army
- Veteran groups
- Expenses paid for a student living with you, which is sponsored by a qualifying organization.
Not Deductible as Charitable Organizations
- Sports clubs, chamber of commerce, civic leagues.
- Foreign organizations (except certain Canadian, Israeli, and Mexican charities)
- Groups that run for personal profit
- Lobbying groups
- Homeowner associations
- Political groups or candidates for public office
- Costs of raffle, bingo, or lottery tickets
- Dues or fees paid to lodges, country clubs, or similar groups
- Value of your time or services
- Value of blood given to a blood bank
When to deduct your contributions
You can deduct your contributions only in the year that you actually make the contribution. When it comes to filing your deductions, the date you made the contribution is very important. Whether it’s a check, text message, credit card, pay-by-phone, certificate, or any other type of payment, you can only deduct the contribution the year you made the payment.
Limits on deductions
There is a limit on the amount that you can actually deduct for tax purposes. Additionally, the amount you can deduct for charitable contributions generally is limited to no more than 60% of your adjusted gross income. Your deduction can be limited to 50%, 30%, and even 20%, depending on the type of property you donate to. Form 526 explains what certain contributions have limits based on a percentage of your gross income.
It’s important to keep records of all donations because you may need to document your contributions later. If you give a contribution of check, cash, or other monetary gift, you must keep a record of the contribution. This is even true for a canceled check or credit card statement. You will want a record of the contribution with the name of the organization, the address, the date, and the amount of donation. Here are some examples of records you will want to keep:
- Canceled check to an organization
- Credit card statement showing a payment to the organization
- Giving statement from the organization
- Out-of-pocket expenses
- Phone bill (if payment was through a message)
- Email confirmation from an organization
- Itemized list of the items you donated
Once it’s time to report your contributions, you will fill out Schedule A (Form 1040). Generally, when you file your tax deductions, it’s important that you follow the instructions on form 526. You’ll have to take a look at different rules for cash contributions, non cash contributions, deductions over $500, deductions over $5,00, vehicle donations, and more. If you need help filling out your tax form, the IRS has many resources to ensure that you feel confident in completing your forms.
What you can do now
Now that you know what a qualifying contribution is, you can start making sure that you are properly storing your records. It’s very important to keep your donation records organized so you can access them when you need them and make sure that you report your deductions on time. This is where Timesheets.com is truly useful. As a business you’ll appreciate the ability to track transactions and store receipts, reimbursements, and contributions. We make it easy to access and report your data at any time.
I didn’t know that there will be tax deductions for businesses that donate to those in the times of need. I would imagine that it will be a great incentive for businesses to contribute to society especially during this pandemic. This is an interesting piece that I would share with my friends if the topic of donation to medical frontliners come up during our discussions.
Yes, many businesses donate to those in need, especially during these difficult times. Thanks for sharing!
So, is it fine for me to contribute 10% of my business revenue to my Church, so the business takes the deduction from income, instead of me taking a distribution and then paying the 10% from my pocket, where the donation won’t do me any good because it will not be enough to put my itemizations over the standard deduction limit, or…would the IRS just view that donation as a distribution taxable to me?
Hi Nathan, that’s something you would want to talk about with your tax representative.
It is a wonderful article about federal-tax deductions for businesses, who donate to charity, which can be the best option as per your need. I like how you have researched and presented these exact points so clearly.
Thanks for explaining how a business can get tax deductions if they donate to a qualifying organization. My brother wants to start a business before the end of the year. I’ll tell him that if he does he should donate to an organization that is related to the things he does so he can make his customers happy and get a tax deduction.