Small Business Guide for Charitable Giving & Tax Deductions

Businesses are always looking for meaningful ways to help charities or improve their local communities. Charitable acts can include volunteering at a food center or donating money to a nonprofit organization. Kindness acts to benefit the community and can help build brand loyalty.

Donating to charity is a great way to help your community, but it can also cause some problems for small businesses. We will outline what small businesses should know about charitable donations so that they can benefit their communities while also receiving tax and public relations benefits.

Donating to charity has many benefits

Businesses can reap a variety of benefits by donating to charity. Here are some benefits of donating regularly to worthy causes and nonprofits.

Giving to charity helps you stay connected with your community

Charitable giving is a good PR for small businesses, especially those who depend on community involvement.

Kristen Fusaro Pizzo, a Staten Island Technical HS Peer Collaboration Teacher, explained that what separates small businesses from large corporations is their connection to the community. People want to… shop at small businesses because they care about them and their causes.

Charitable giving shows that your small business is involved in the community and also that you’re not just interested in profit. You may not be able to get the same tax deduction that big companies and enterprises do, but this doesn’t mean your business should ignore other benefits.

Brad Schweig is the vice president of Sunnyland Furniture’s operations. He said, “As an independent retailer, we feel it important to give back to our community.” There is no tax benefit to us. It’s all about being part of the community. It is a good marketing tool because we want to let people know we are local. Our team is also local. We support our local community.

Give your team extra paid time to do a charity project that is meaningful to them. This is an excellent way to show employee gratitude as well as your company’s core values.

You can build your network by giving to charity

Donating to a local organization can be the beginning of long-lasting relationships and broader professional networks. Giving to a local charity can lead to long-lasting friendships and professional networks.

Kris Putnam Walkerly, strategic advisor for philanthropists & foundation CEOs, advised: “Develop a relationship with the charities that you support.” Don’t limit your giving to the end-of-year. Speak to the nonprofit to find out how you can help all year round, including volunteering, sponsoring an event, and inviting the charity CEO to speak at your local business association. Remember, it’s a mutual relationship. Ask the charity how they can publicize your support.

Intangible benefits of charitable giving

A company can gain the following benefits through charitable giving.

Better company culture: Working in charitable organizations will improve morale and demonstrate to current and future employees your culture.

Brand image improved: Giving to the community or the world shows Corporate Social Responsibility. This can lead to an improvement in your brand’s image and a loyal customer base.

Charitable giving increases employee satisfaction because employees — especially millennials– want to be part of something larger.

Donate to charity in many ways

Donating money to charity is not the only option. You can support charities in many ways.

Donate your time. Businesses can give their time for a good cause. Consider volunteering at a charity-run shelter, food bank, or other charitable organization. You can also motivate employees to volunteer using their talents and skills.

Businesses are always on the lookout for companies to sponsor youth teams. Donate money to help maintain the field and uniforms. Sponsoring companies can display their name on uniforms and field signs.

Launch an initiative to raise money for charity. You can start a collection of non-perishable items for food banks or organize a holiday toy drive.

Donate on the web. Set up automatic donations via virtual giving platforms. You can even place a collection jar at your business or an online portal.

How to claim charitable tax deductions

Tax deductions from charitable donations can have a significant impact on small businesses. Your chosen charity must be an actual 501(c) (3) organization to qualify as a charitable donation. To confirm that the group has been registered, use the IRS Search Tool. Search by state to find the charity you want.

You can choose between two methods to deduct charitable contributions when it comes to sole-proprietorship tax.

Business Tax Deduction: You may be eligible to claim a deduction for business taxes on Schedule C if your contributions are expected to have a benefit to the business. For example, you could sponsor a sports team in order to improve community relations. A business tax deduction is generally more beneficial than an itemized deduction.

Itemized Deduction: If you are a sole proprietor and cannot expect to benefit from your charitable contributions, they can be deducted with other itemized deductions on Schedule A.

The Tax Cuts and Jobs Act of 2017, which increased the standard deduction, made it more difficult to claim charitable donations, as well as itemized deductions. There are some ways to avoid this change. One of them is by using a donor-advised fund. Donor-advised funds allow you to make a large donation upfront to qualify for tax deductions. The fund holds the money. If you wish to give more regularly, the money can be distributed over several years.

Does it sound complicated? If you are unfamiliar with the rules, it can be. Ask financial experts how you can make significant contributions to charity that may have long-term tax implications.

Kathleen Adams, CFP, co-founder and CFP of Second 50 Financial, warned that small business owners should talk to their tax advisor before seeking advice. It’s just too complex right now. Many people have misconceptions. People come to me with information they have read online. “This is not the year to do it.”

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