Sharing, as they say, is caring, and many small business owners are in the business of doing just that through generous charitable donations during the holidays and throughout the year. In fact, according to the Small Business Association, approximately 75 percent of small business owners donate a portion of their profits to charity.
While the driving force behind such donations is to help others, there’s no reason merchants shouldn’t do everything they can to help their business in the process. Here are four essential charitable deduction tips for small business owners.
Choose Your Charities
Determine what type of charity/charities you want to support. You may choose one that’s relevant to your business or one to which you have a personal connection. If your business serves mostly local customers, you may want to choose a local charity.
To get a deduction, for the most part, you want to choose a 501(c)(3) organization. You can check an organization’s status with this IRS search tool. To make sure a charity is legitimate, check with the Better Business Bureau or an organization like Charity Watch to ensure you don’t get scammed.
Know the Limits
While your generosity may know no bounds, your tax deductions will. You can only claim charitable deductions that amount to less than 50 percent of your adjusted gross income.
Also, if you provide a service, you can’t deduct your time or expertise. You can, however, write off things like gas to and from where the service is provided as well as supplies and materials used. If you receive something in return for a donation — for example, signage at an event — you must deduct the fair market amount of what you receive from your deduction.
Make sure you get (and keep!) a written receipt from the nonprofit to which you donate acknowledging your donation and putting a monetary value on goods and services donated. You will need this to support your deduction, especially if you get audited.
Don’t Be Shy About Your Contributions
Customers like to know they support businesses that do good. In fact, surveys show that 86 percent of people think more favorably of charitable businesses. Your involvement with a charity can also be a great way to partner together to spread both of your messages.