The Bible says “Give, and it shall be given to you” and the federal Tax Code certainly agrees. While tax write-offs may not be your motivation for giving, they can certainly be your reward. Here are five ways to get when you give.
1. Give cash
One of the best ways to help a cause is to donate money. You can also encourage employees to give by agreeing to match their contributions up to a set limit. Rebates earned on certain credit cards is another way to make donations.
Tax break: Cash donations by C corporations are limited annually to 10 percent of taxable income. Owners of other businesses can deduct their share of the company’s contributions on their personal returns, and cash donations are limited to 50 percent of adjusted gross income. Unused contributions can be carried forward for up to five years. The credit card rebates are not taxable, and the contributions made with these rebates are tax deductible.
Caution: You must obtain a written acknowledgment from the charity for any donation of $250 or more (even if the donation is made through a credit card rebate); a canceled check or credit card statement is not sufficient in this case.
2. Give from inventory
You can make good use of items that may be sitting on your shelves by donating them to a charitable organization.
Tax break: Donations are typically limited to the fair market value of the inventory on the date you donate it, reduced by any gain that would have been realized if you’d sold it (the donation is essentially your cost). But some donations entitle you to an enhanced deduction of 50 percent of the difference between the basis (usually your cost) and the fair market value, but not more than 200 percent of the basis. Enhanced deductions are allowed for:
- Donations by C corporations for the ill, needy or infants
- Donations by C corporations of scientific property used for research and computers for education
- Food (must be wholesome and meet all labeling standards)
- Books given to public schools (grades K-12)
Note: Some of these breaks expired at the end of 2011 but may well be extended retroactively for 2012.
3. Encourage volunteerism
This may not cost you a thing! For example, your company can host a blood drive on your premises or support a local drive sponsored by someone else. Participate in storm relief efforts, such as food or clothing drives.
You can also encourage employees to become volunteers for local charities of their choice. You may want to consider giving them time off for these efforts—if you can afford to do so.
Tax break: Any ordinary and necessary business expenses you incur to further these activities are tax deductible.
4. Sponsor local teams or events
You can support local little league or other neighborhood teams that depend on businesses for uniforms and equipment. Your company name and logo will be displayed on uniforms and included in team names, giving your goodwill efforts local visibility.
You can also sponsor local events, such as your town’s community day. Again, your company’s name will be featured to promote your business while you help with a worthy cause.
Tax break: You can deduct the cost of supporting local teams and events as ordinary and necessary advertising expenses. There is no dollar limit on your write-off for this cost.
5. Change your search engine
You can make donations simply by changing your search engine. GoodSearch, powered by Yahoo!, automatically donates something to a charity of your choice for every search and purchase you make. It doesn’t cost you a thing! Just add the GoodToolbar to your browser.
Tax break: Because you aren’t making the donations (they are made by GoodSearch), there’s no write-off for you. But you may find coupons here to save you money on purchases of business items (e.g., office supplies through Office Depot). The savings are tax free.
These are not the only ways to be charitable. Get creative! For example, if you sell inventory on eBay, consider using GivingWorks to donate a portion of each sale to a charity of your choice.
Also, talk with your tax advisor about what you need to do to satisfy IRS substantiation requirements for charitable donations so your efforts will pay off at tax time.
Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser’s Small Business Taxes and The Complete Idiot’s Guide to Starting a Home-Based Business, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business at www.barbaraweltman.com and host of Build Your Business radio. Follow her on Twitter @BarbaraWeltman.
Photo credit: Thinstock