Last year we talked about ways your small business could give back. If you have made a commitment as a business owner to give to your favorite cause, organization, or initiative, congratulations because that is awesome! Now that you are actively giving back as a business, you will want to record and write off all of your charitable contributions. Why you might ask? First off, that’s good practice, and second, tax breaks! We are sharing seven tips and tricks for recording and deducting charitable contributions and donations.
You must give to a qualified organization in order to receive a tax deduction. You are not able to deduct contributions that are made to a specific individual or political organizations. The IRS provides a list of eligible organizations. You can rely on this list to determine the deductibility of your contribution.
Churches, synagogues, temples, and mosques are all eligible as deductible donations, even if they aren’t on the list. If you aren’t sure if the organization you are giving to is qualified, ask! And remember, donations to individuals do not qualify. If there is a certain person you want to help with a charitable contribution, see if they are involved with a qualified organization that could use your contribution for the greater good of the community they serve.
You can only deduct charitable contributions if you itemize deductions on Form 1040, Schedule A.pdf, Itemized Deductions.
Always, alway ask for and save your receipts! Cash deductions (regardless of the amount) must be backed up by a bank record such as a canceled check or credit card receipt, and clearly marked with the name of the organization. It should include the date, amount, and the organization that received the donation. You must have acknowledgement of your contribution from the organization you gave to in order to claim a deduction for a contribution of $250 or more. Don’t sweat about including these receipts with your tax return, but keep them on file in case of an audit.
A charitable donation is only deductible if the amount of the contribution exceeds the value of the good or service received in exchange. The amount given, less the cost of the gifted good or service, is the amount which can be deducted.
Many businesses are offered marketing or sponsorship opportunities when they support charitable organizations. For example, a business sponsors a charity event and their logo is put on all of the event’s marketing materials. Another example would be the ticket bought to a charity event where you are served a meal.
Unfortunately, you can not deduct time spent volunteering your services, however, you can deduct volunteer related expenses like parking fees, travel expense, uniforms, supplies, etc. As with everything else, always keep good records of these expenses as well as receipts!
If you give non-cash items don’t forget to document the value of your gift Record keeping is always important, but even more so if you are giving items. You will need to determine the fair market value of the item(s) or what they would sell for in their current condition.
If it is a contribution of an item valued under $500, be specific in your record keeping. Jot down a thorough description and the condition of the item. If you are giving something that is worth more than $5,000 in value, you will need a written appraisal.
If you donate physical items over $500, you may be required to fill out parts of form 8283. For information on determining the value of your non cash contributions, refer to Publication 561, Determining the Value of Donated Property. Special rules apply to certain types of property like automobiles, inventory, and investments that have appreciated in value. For more information, refer to Publication 526, Charitable Contributions.
Gifts must be made by December 31st in order to count during the tax year. If the contribution was made on December 27th, but the cash doesn’t come out of your account until January 1st, you can count that! You can also count credit-card charges, even if the charges haven’t been paid off.
We hope these tips & tricks will help you record and write off your charitable donations. What qualified organizations are you contributing to at this time? We would love to know.