Making a charitable donation is something of an American tradition. Donations to several nonprofit organizations are tax-deductible. Making such a donation as a business owner will help lower your tax bill, which is excellent for your business.
That said, the Tax Cuts and Jobs Act of 2017 has made getting tax write-offs more challenging. It is, therefore, essential to talk to a CPA to ensure that tax-deductible contributions are the correct choice for your company. Businesses should consider the following things under this new law.
The Charity Should Be A Tax-exempt Organization
You can only get tax benefits if you donate to an organization that qualifies for tax exemption. Organizations with a 501(c)(3), along with religious institutions, churches, and certain trusts, all qualify for tax-deductible donations. If you are looking for qualified nonprofits, you should use this IRS tool.
Your business structure, according to the new law, determines how you can implement the tax deductions. Here is how tax write-offs apply in different business structures.
- C Corporations
A C corporation is an individual entity and all the only businesses that can make direct deductions of donations from their taxable income. The law allows such a business to deduct 21% of their total contributions if it is not more than 10% of their total taxable income.
- Partnerships, Sole Proprietorship, And S Corporations
These businesses are pass-through organizations. Their taxes are passed on to the business owners, such as the partners in partnerships. In partnerships and S corporations, the owners’ deductions are determined by their shares in the business. The Tax Cuts and Jobs Act of 2017 allow you to itemize your deduction when filing your returns, just as you have been doing. You can also choose to use standard income deduction, but you cannot deduct your charitable donations in the same year. It is essential to take your time and do the math to get the most out of your deductions.
Three types of donations are tax-deductible; they include the following.
- Cash Donations
When you donate a cash amount to nonprofit organizations, you can get tax deductions.
- Equipment, Property, And Inventory
You can choose to donate some of your inventory, equipment, or supplies to charitable organizations in your area. The deductions will be equal to the value of the items you donate.
- Volunteer Expenses
If you donate your staff to help at a charitable organization’s event, their wages and salaries are deductible. You can also deduct their meal and travel expenses.
Non-financial Benefits Of The Donations
When you make contributions, it is crucial to consider the non-financial benefits of your donations. Making charitable donations improves company reputation, motivates employees, and helps achieve your business goals. That means, although small businesses get fewer tax benefits, there are many other gains that you can get for your business. These can help grow your business and increase your revenue.
It is advisable to talk to a CPA to ensure that you get the best from your charitable contributions. Have questions? Contact us at (480) 558-4400.