Contributing to Your Community: Understanding Charitable Tax Deductions for Small Business Owners


business chartySince the rise of the social responsibility campaign as a platform for all things sustainable, charity or ‘good work’ on behalf of the environment or community has become an essential attribute of shareholder reporting. Profits are inevitably tied to reputation. If customers and employees view a company in a positive light, it is highly probable that their loyalty and volunteerism will contribute even more value to the organization in return.

Tax-Free Charitable Contributions


The U.S. Federal Small Business Administration (SBA) recommends that small business owners make charitable donations for tax write off. Charitable donation is an Internal Revenue Service (IRS) tax exemption allowing businesses to contribute up to 50% of their profits. Targeted charities should hold IRS 501 (c ) 3 status to qualify as a tax write for contributors. IRS Publication 526 Form and Instructions list categories of deductible donation.

Some small business offering pro bono or volunteerism to organizations as part of social responsibility strategy, may also want to donate funds. Rules to GAAP (Generally Accepted Accounting Practices) and ABC (Activity Based Costing) statements used by small, for-profit businesses allow for some flexibility in scheduling of line-items. For instance, a business may want to donate inventory, yet account for this debenture in a future cycle to offset profits. Easy come, easy go.

Philanthropic donation is a win-win strategy. If a charity partner’s mission or program is the endpoint goal, the secondary objective is still a tax write off. If a small business owner is uncertain about the exact guidelines to financial control of charitable contributions, a professional accountant or tax attorney can provide the information required to audit the transaction.

Charitable Contributions: an Official Form of Giving


When considering philanthropic targets, review for eligible donation options such as cash, pro bono or volunteered services, corporate sponsorships, foundation or trust funding, capital support of major building or endowment projects, and end-of-year stock contributions.

It is important to remember that in addition to tax benefits you are also able to receive community reputability and possible future business. Other considered community options that would benefit both the business and community residents would be fenced tennis courts, basketball courts, baseball diamonds or other contributions that are visible to the community of your philanthropy.

It is important to review current IRS rules to contributions to ensure that donations qualify for deduction. Knowing the rules to tax benefit will assist in a charitable strategy that contributes to another organization, while retaining cash flows.

Remember: charitable contributions are an official form of giving. Determine which strategy will be the most economic value added to your organization long term. By following IRS guidelines to 501 (c) 3 contributions, a small business can benefit from tax exemption and the reputation of ‘doing good’.

Information provided by Lynx Brand Fence Products Ltd., a Calgary fence building company.


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