Charity isn’t just good for your soul: It can be good for your business! Few things can boost your tax savings like a charitable contribution. It’s two birds with one stone. You’ll get good karma AND save the money you earn!
At Hacker Accounting, we know how being charitable can benefit your business. Here’s what you need to know before you donate.
Who Can I Donate To?
You can write off your donations to charitable organizations, provided that they are legitimate charities and are recognized as such by the I.R.S. You cannot write off contributions to foreign governments and foreign charities; Some private foundations are also not deductible. There are many charities who qualify for deductions. If you’re not sure if the group you’re donating to qualifies, consider if they fall into one of these acceptable qualities:
- Churches and other religious organizations
- A government unit, such as a state or a political subdivision of a state
- Tax exempt educational organizations
- Tax exempt hospitals and certain medical research organizations
- Publicly supported organizations such as a community chest
- Private operating foundation that pools all of its donations in a common fund
- Certain membership organizations that rely on the general public for more than a third of their contributions
- Certain foundations that distribute all contributions they receive to public charities within two-and-a-half months after the end of the foundation’s fiscal year.
How Does It Benefit My Business?
Donating to a qualified charitable organization can entitle you to a charitable contribution deduction on your income tax! You’ll have to itemize your deductions in order to claim the charitable contribution. Your contribution will be deductible in the year in which it is paid. Putting a check in the mail to your charity constitutes payment. For credit card transactions, your deduction will apply to the year in which you charge your card.
The way it works is that your deductible gifts are affected by your tax bracket. The actual cost of the donation is reduced by your tax savings! So as your income tax bracket increases, the cost of your charitable gift decreases. This is one of the reasons why the wealthy love donating to charities.
What Can I Donate?
Cash and financial transactions are the most common deductions. You can also deduct old clothes, equipment and furniture provided they are in good condition. Always get a receipt for your clothing and furniture donations! You can also contribute property that you’ve owned for more than one year (The value of the deduction is usually equal to the fair market value of your property).
What Else Should I Do?
Document EVERYTHING. Make sure you have a record of every donation you make. Receipts, written appraisals, checks you cancel and anything that can back up your donation and prove its veracity you should do. One of the first things to go under intense scrutiny during an audit is your donations. Make sure they’re good to go before you write them off.
Want to find out more about how being charitable can benefit your business? For more information, give Hacker Accounting a call at 602-375-5251.