Small Business Charitable Contribution Tips

Article written by EricBank

As we enter the final month of 2014, many small businesses are planning charitable contributions. This is a good idea, for many reasons beyond the tax deduction. Let's explore the why's and how's of intelligent charitable giving during this holiday season.

Benefits Beyond Taxes

Charitable giving is great for business, because it helps instill a positive image among your customers, especially when you pick a charity that is important to them. One feature of running a small business is that you get to know your customers, so that you can often figure out which causes they find the most appealing. If in doubt, just ask! In one 2010 survey, 90 percent of respondents said they wanted a business to tell them how it is supporting a cause. You also can boost employee morale by giving to a cause they find important, helping to foster a community feeling inside the company. Giving helps your marketing efforts by allowing you to connect with local leaders in a different context, and even garner some coverage on the local news.

How to Proceed

You need to plan the amounts and recipients of your charitable giving early enough in the year so that you can budget and put aside sufficient cash. This can be a challenge to a busy business owner, but consider it another necessity of the job. Select a charity to which your business has some plausible connection. Do you sell food as a retailer or restaurant? Contribute to a charity that runs a food bank or sends food packages to our military personnel overseas. Dentists, doctors, lawyers and other professionals can offer free services to the needy who otherwise couldn't afford to pay. Involving your employees in the decision helps to empower them and increase job satisfaction. Make sure the recipient is legitimate -- the well-known charities are usually a safe bet. Let your customers know what you are doing -- don't hide your light under a bushel basket!

Get Your Tax Deduction

Your business does good when it contributes to charity and does well by its bottom line through the resulting tax deduction. Make sure the recipient's tax status provides you with a deductible expense. The charity is usually a tax-exempt 501(c)(3) outfit and will probably accept volunteered services, inventory and sponsorship of local events in addition to cold hard cash. In general, you can deduct up to 50 percent of your adjusted gross income for charitable contributions, although non-cash contributions can be a little tricky. Here are some tips:

• You can't deduct contributions to a specific person, only to the organization.

• Sole proprietors itemize their deductions on Schedule A of Form 1040. 

• You can deduct the fair market value of contributed inventory or property, but use Form 8283 when the value exceeds $500. 

• You can't deduct volunteer work, but you can deduct some of the expenses you encounter while performing the work -- mileage, special uniforms, hosting a fundraiser, etc. 

• If you receive anything in return for your contribution, you'll have to subtract its value from your deduction. Be aware of this at charity auctions -- only the amount above the auctioned item's fair market value is deductible. Unless, of course, you donate the item as well.