Jump to Main Content
USA flagAn Official Website of the United States Government
Managing a Business

Blogs.Managing a Business

Register

How Small Businesses Can Get Tax Deductions for Charitable Giving

Comment Count:
12

Comments welcome on this page. See Rules of Conduct.

How Small Businesses Can Get Tax Deductions for Charitable Giving

By jdelung, Contributor
Published: December 16, 2013 Updated: December 16, 2013

Most small businesses make charitable donations. In fact, surveys have shown that about 75 percent of small business owners donate some portion of their profits — about 6 percent on average — to charitable organizations each year.

As we’re in the midst of the holiday season (and tax season looms), many small business owners are likely considering charitable contributions and wondering how such donations might impact the bottom line in terms of tax deductions. First, it’s important to choose the right charity and avoid certain pitfalls that could leave you in a bind.

Choosing the right charity

Only certain types of contributions qualify for a deduction (more on that later), so if getting the tax benefit is part of your goal, it’s important to properly research any organizations to which you plan to donate. However, you might also think about other potential benefits (aside from the great feeling you get from helping others) such as how the donation aligns with your public relations strategy for corporate social responsibility and how meaningful a volunteer project or fundraising initiative might be for employees.

Although tax deductions and the rewarding benefit of helping those in need are often goals in charitable giving, you should also consider that such acts also open up an opportunity to showcase the good work you’re doing in the community to potential employees and customers. 85 percent of consumers have a more positive image of companies who are philanthropic. Employees who have a favorable impression of their company’s philanthropic program are five times more likely to remain with their employer.

For more on aligning your charitable giving strategy with your business strategy, follow these five tips from Small Business Trends. You should also consult the FTC’s checklist for avoiding charity scams.

Getting the deduction

Again, not everything qualifies. But by following these general guidelines and consulting your accountant or tax attorney, your small business should be set to get credit.

  • Identify an eligible charity, usually a 501(c)(3), using this IRS search tool
  • Make an eligible donation: cash, volunteered services, sponsorship of a charity event or the donation of inventory or services
  • Understand that each category has its own limitations (for example, you can’t deduct the value of your volunteered service, but you can deduct expenses incurred such as supplies) — links to all the related forms and limitation information are available from the IRS (see also: IRS Publication 526)
  • Ensure the donation is paid in full by the end of the tax year and reported through Form 1040, Schedule A
  • Take your deduction, but remember that the IRS limits the amount of charitable donations that can be considered tax-deductible to 50 percent of your adjusted gross income
  • Keep records — you’ll want them in the event of an IRS audit. Generally, an organization should give you a written statement if it receives a contribution from you

Charitable giving boils down to determining your strategy, properly researching the organization to which you wish to donate and following the IRS’ guidelines for giving. Do those three things, and your small business will be well on its way to giving back.

About the Author:

Joshua DeLung

Contributor

I am an author for the the SBA.gov Community. I write about useful topics for your entrepreneurial endeavors and help point you in the right direction to find other resources for your small business needs. Our ongoing goal is to improve this site to meet your needs, so we're happy to receive your feedback and participation. Thanks for joining our online Community here at SBA.gov!

Comments:

Donations are a great way of being socially responsible and giving back to the community. A stronger community leads to stronger business ties and a stronger growth. Definitely it makes more sense to understand which donations qualify for a tax deduction, how much is the deduction and how to go about claiming it. It is a win-win situation for all.
Very good post. Perhaps you can cover additional information around giving company stock in charity.
Hi, Rene. We appreciate your interest in publishing this article; because it's public domain, you can reprint with credit given to SBA.  Thank you!
Great tax tip. Thank you for the post!
How will charitable donation be deducted for LLC? Can I deduct it as business expense?
Hi! Thank you for your questions. I have included a link to the IRS.gov website as an additional resource for you http://www.irs.gov/taxtopics/tc506.html.  I hope this helps you as we approach tax season.
It is a great time of year to give to a local charity in your community. Not only help with Tax deductions it also can help improve your companies brand and of course the needy people in our areas.
For small businesses, charity would be a good option by deducting taxes specially in the holiday seasons would be a good strategy to bring business back to its line.
It's getting to the end of the year and people are starting to think about tax deductions.it’s good idea to choose the right charity and avoid certain pitfalls.
need to create a strong charities. properly researching the organization to which you wish to donate

Pages

Leave a Comment

You must be logged in to leave comments. If you already have an SBA.gov account, Log In to leave your comment.

New users, Register for a new account and join the conversation today!