Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

The federal Small Business Administration reports that about 75% of small business owners donate some portion of their profits to charity each year. The average contribution is around 6% of earnings. Fulfilling philanthropic intentions has emotional rewards, and there can also be tangible benefits for your business. The more you align your charitable intentions with your own passions, the greater the potential payoff.

            One possible advantage is that your company’s employees may truly get involved in your charitable activities. Consequently, they may become more productive overall and stay at your firm longer.

                Example: Janice Peters is the primary owner of a company that does printing and mailing. She is also heavily committed to animal rescue; she owns multiple dogs and cats that have been rescued from shelters, she temporarily fosters other animals for eventual adoption, and she contributes to animal welfare charities. Janice’s donations come from her business profits and from her personal funds.

            To get her employees involved, Janice provides financial incentives for pet rescue and volunteering in shelters. Selected departments have days for bringing their well-behaved pets to work, and Janice’s company sponsors relevant fundraisers. The result of these efforts, Janice has discovered, has been the ability to hire likeminded people and exceptional retention of valued workers.

            Such opportunities to mix business, charity, and advocacy are unlimited. A business owner who is a sports fan might back a youth team, for instance. If the cause you support relates to the environment, you might mention that your company is supporting a sustainability initiative, an idea that will resonate with many people. Yet another approach is to allow employees to have a voice in choosing charities the company will support. 

Spreading the word 

Business benefits from charitable endeavors can be external as well as internal. Janice highlights her company’s animal rescue activities on its website and through its social media presence, all of which makes her company memorable to potential customers. She also sits on the board of some local animal rescue groups, where the other board members include business owners who share her interest. When they need printing and mailing, Janice’s company often comes to mind. 

Tax treatment 

Companies may very well reap tax benefits from their donations. C corporations can deduct charitable contributions against business income. Pass-through entities (S corporations, partnerships, LLCs) may pass through such deductions to business owners who itemize deductions on Schedule A of their personal tax returns. Note that if your company receives a direct benefit from its philanthropy—say you support a Little League team that advertises your company’s name on its uniforms—the outlay may be deductible as a business expense rather than as a charitable contribution.

            Services provided by you or your employees are not deductible. However, expenses involved while volunteering may count as a charitable contribution. Donations of property might be deductible at fair market value; special rules apply to donations from inventory.

            Our office can help you determine whether a philanthropic outlay is a business expense or a charitable contribution. We can also explain how to obtain an acceptable valuation for any goods you might be donating. Maximizing the tax benefits will help your business get the most from its efforts to help others