How to make charitable tax deductions
There are tax benefits when your business donates to charity. For your donation to qualify for a tax deduction, your chosen charity needs to be a bona fide 501(c) (3) organization. Use the IRS’s search tool to confirm the group is registered. You can search by state, which helps you quickly find your charity of choice to confirm whether you are eligible to receive a tax deduction.
It’s important to note that the Tax Cuts and Job Act of 2017 made it harder to claim tax deductions for charitable giving. There are ways to get around this change, however, including the use of a donor-advised fund. A donor-advised fund allows you to donate enough money upfront in one year to become eligible for tax deductions while the donor-advised fund holds on to the money. You can then distribute the money from the fund over several years if you want to make more regular donations.
Sound complicated? It can be if you’re unfamiliar with the regulations. It’s not a bad idea to speak with financial experts for advice on how to donate to charity in a way that makes sense for your business. It’s easier to file your taxes at the end of the year when your tax advisor helps with your tax return.
“As far as looking for advice somewhere, I honestly believe [small business owners] should be talking to their tax advisor,” said Kathleen Adams, partner at Signature Estate & Investment Advisors LLC. “It’s too complicated right now. People have a lot of misconceptions. They come to me all the time with things they’ve read on the internet. This isn’t the year to do that.”
Before speaking to a tax advisor, there a few basic things you can learn about charitable deductions. Businesses should know the three types of charitable gifts that can be deducted:
Gifts of property or equipment
Travel expenses accrued when helping a charitable organization
The 2019 IRS standard mileage rate is 14 cents, meaning you can expense 14 cents per mile when you travel to help a charitable organization. This might not be a lot of money when you help local organizations, but it’s still worth tracking and deducting. Keep your gas receipts and track mileage to better estimate the money you’ve spent traveling for charitable giving. Cash contributions are straightforward and should be easy to track.