Turn Charitable Donations Deductions Into Business Expenses
The charitable donations deduction is generally an itemized deduction on your personal tax return (1040). That means, that unless you spend over $6,300 (for individual) or $12,600 (for married couples filing jointly) you get absolutely no real benefit.
Understanding The Charitable Donations Deduction
However, if you convert your charitable contributions into a business expense, the tax benefits sky rocket. This value goes even further by allowing your business to list the expense on their Schedule C. Your new charitable business expense reduced both self-employment tax and income tax. In addition, you also reduce your adjusted gross income (AGI).
The lower your AGI is the more benefit you will receive from other non-business tax deductions and credits not otherwise of value. Deductions such as extra child credits and increased rental real estate deductions will start to add up.
Some of our clients ask us how to turn a charitable donations into a high value deduction without being obvious. Well lets first start out by stating the tax law concerning charitable contributions being considered business expenses.
1. Directly related to your business and
2. Made with a reasonable expectation of a commensurate economic return.
These two rules are very simple. First, every charitable contribution must be represented as marketing for the benefit of your business. Secondly, you must reasonably expect that your marketing will generate more business now or in the future equal to or greater than the expenses. With that being said, no one that enters into a marketing expenditure knows exactly what the future holds. It is just one of many efforts that each business must partake in to drum up awareness of products and services.
Charitable Donations as Business Expense Strategies
#1 – Donation as Advertisement
Charlotte and Richard own a fitness center down town. There is a charity drive at the local children’s hospital. They both really enjoy helping children and would love to be involved.
In order to donate and to still receive that sizable deduction through a business expense, Charlotte and Richard must sponsor the drive. When the drive begins the owners can set up a small table, hand out goodies to those who are donating etc.
#2 -Portion of Sales Go To Charity / Charitable Rebates
This is a great way to encourage customers to buy more, knowing that they are helping a very good cause. However, you must be careful as to not give away your own deduction to them. The simple solution to this issue is by providing a rebate attached to their receipt.
When you provide a rebate ticket, there is absolutely no confusion as to who receives the deductions. The contribution is found in the use of the rebate, redeemable only from the company which provided the rebate certificate.