Most small businesses give back to their local communities throughout the year, typically because of a love for the people and the location rather than a laser focus on tax deductions. However, charitable contributions can be tax deductible. Here’s what your small business should know about charitable contributions and deducting them this upcoming holiday season.
5 Charitable Giving Ideas
Charity sometimes connotes money, but it isn’t the only way to give back. Many small businesses get creative with their charitable giving, which personalizes the donations and makes giving fun. Check out these five holiday giving ideas to get inspired.
- Volunteer locally or virtually. Local volunteerism is great, but you might not have a schedule conducive to after-school programs or local sports teams. If that’s you, you could look into virtual volunteer opportunities. At last count, VolunteerMatch numbered over 6,000 virtual volunteer requests.
- Sponsor an event. The holidays ring with socials and events, with some of them being dedicated to a charitable cause or organization. You can join the trend — or partner with other local businesses — to sponsor one. To keep things simple, hilarious and charity-oriented, consider hosting a National Ugly Christmas Sweater Day party.
- Participate in a food drive. The local food banks and homeless shelters need donations during the holidays, particularly as they prepare for cold winter months. You could hold a food, blanket or coat drive at your business and ask employees and customers to participate.
- Go for a run. The holiday season typically features a few 5Ks and marathons. You could put together a small team and run a race for charity. To encourage healthy activity and charity all year long, you should look into Charity Miles.
- Think small. Your greatest charitable gift could be the one that only an individual family, veteran or homeless person sees. Many people need assistance or a warm conversation during the holidays. You could provide it by “adopting” a person or family through sites like Family-to-Family, the National Coalition for the Homeless and the Department of Veteran Affairs.
3 Tips To Select The Best Charity For Your Small Business
A community’s needs sometimes are so many that they overwhelm. Take a breath. It’s okay that you won’t solve world hunger or poverty. You can, however, make a difference in the corner of the world you call your own.
The secret to success lies in understanding your limitations. You can’t support every local organization with a need, no matter how much you want to. You have employees to pay and customers to satisfy. If you rob the prince to help the pauper, both eventually become paupers.
With those thoughts in mind, use the following three tips to ensure you choose the best charity for your small business.
- Make sure the charity qualifies as a tax deduction. Generally, all 501(c)3 organizations fit the bill. The IRS’ online tool allows you to search for qualified nonprofits and charity organizations in your area.
- Know the local needs. You can support almost any organization you like (see above point), but you should focus on where the need is greatest. To discover that information, speak with business leaders, nonprofit board members and other, local business owners.
- Align the cause and the business. Even with the research conducted in steps one and two, you could end up with a sizable list of possible charities to support. Whittle it down to size by looking for a common denominator. For example, if you work in technology, you might want to focus on IT-related volunteerism and donations. A local salon, in contrast, might work with young girls or mentor homeless women going out for job interviews.
If you follow those three steps, you will transform the local community and, as a bonus, increase potential tax deductions.
5 Things To Know About Deducting Charitable Contributions
“Potential” is the keyword. Not all donations are tax deductible. However, you usually can overcome the challenge while staying within federal regulations and guidelines. Keep the following five items in mind when deducting charitable contributions on your taxes.
- Cash and money contributions typically are tax deductible as long as you follow the rules. The money can’t be given to a specific person nor can you receive benefits, such as advertising space, in return for the cash gift. In addition, the financial donation must be made during the tax year.
- Physical donations, including business inventory, are tax deductible. The deduction should be based on fair market value, not on what you charge in the store.
- Volunteer hours are not tax deductible. Sadly, the IRS won’t reward a deduction for mentorship and expertise. But you can file deductions related to volunteerism, such as miles driven and out-of-pocket costs.
- Track gifts, miles and hours. To claim tax deductions for charitable contributions, you will need to keep excellent records.
- Know your tax forms. Small charitable contributions occur on the 1040, Schedule A form. Large donations, i.e., those over $500, take place on form 8283. A professional bookkeeper or accountant can help you figure out which form(s) to use.
The holidays are a great time to give back to the community. If you use the information and tips provided here, you’ll do that—and much more. You’ll garner some deductions on filed taxes, as well as transform your city.