Charitable Giving: What Every Business Owner Should Know

A recent study showed that more than 80 percent of customers view a business or product in a positive light when they associate it with a cause they support. An even larger percentage wants to know about the charitable organizations that a company funds. When a business owner decides to make a charitable contribution in order to make the world a better place, it is not only good for community spirit, but it can also boost business and help retain customers. Encouraging employees to become involved increases the payoff by raising morale and providing an additional focus for marketing efforts.

For many businesses, the associated tax break is a tremendous incentive to make charitable contributions. On its website at IRS.gov, the Internal Revenue Service offers an Exempt Organizations Select Check research tool that can help people to determine the nonprofit status of an organization before they give. Most charities file a 501(c)(3) income tax return. As a result, their monetary donations, inventoried items, volunteer hours, and event sponsorships are tax-deductible. They must keep in mind that the tax code is a complex instrument, and not every type of charitable contribution is eligible for a deduction. Typically, businesses can deduct up to half of their adjusted gross income. However, the total amount that any particular company can deduct depends on its individual legal status, with sole proprietorships, S corporations, and partnerships more limited than C corporations.

In order to make matters easier for small businesses, organizations called exchanges will accept donations of products and serve as middlemen to distribute them to groups of pre-verified 501(c)(3) charities. Exchanges can also provide a small business donor with the necessary records for tax preparation.

Experienced business donors know that it’s important to give to causes that are personally meaningful to you. If the head of a company finds giving to be burdensome, chances are that feeling will decrease employee enthusiasm, as well, and the effort will not lead to long-term success.

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