In 2014, over $358 billion was donated to charitable organizations, associations, and causes, $17.8 billion of which was given generously by corporations versus individuals (source: Charity Navigator). This amount represents a 13.7% increase over previous years, which shows that businesses are seemingly giving more now than ever before.
As far as the types of causes are they supporting, over half of the monies donated was given to help fund organizations related to religion, education and human services (almost $212 billion). The remaining 41% of all charitable donations went to foundations, health charities, arts and humanities organizations, and other similar causes.
This may make you wonder whether your small business should join in this growing trend and donate to charities as well. Unfortunately, there is no one-size-fits-all answer to this question. However, there are a few steps that you can take to help you intelligently come up to the right answer for you.
Step #1: Consider Your Current Financial Position
The first factor to think about is whether you’re financially able to donate. In other words, if you’re barely breaking even on your expenses every month, then it’s probably best to wait until you’re more stable before you start sending money to others. While it’s admirable to want to help support a cause that is near and dear to your heart, you aren’t going to be doing anyone any favors by putting your company and all of its employees in harm’s way to do it.
Instead, maybe you could find other ways to help donate to your favorite charities, such as by holding a food or clothing drive and taking up collections from you and all of your staff. Or, if there is an upcoming event scheduled to raise money for the charity, create a company team and do your part that way. Contributions don’t always have to be cash-related to make a huge and lasting impact.
Step #2: Find Out the Tax Advantages and Disadvantages Beforehand
Once you’ve went through your business’ financials and determined that there is enough excess cash to make a donation to your favorite charity, the next step is to find out the tax advantages and disadvantages of performing this type of action. Knowing this information before you do anything can help you decide whether your business can truly afford to give to a deserving charity.
Bonnie Lee, author of Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn’t Want You to Know, explains that whether or not your contribution is deductible depends on factors such as the type of business you own (such as corporation versus sole proprietorship), whether you itemize, and also whether or not you received anything in return for the donation.
To figure out which of these factors apply to you specifically (if any), check with your business accountant. Let him or her tell you whether this is the right decision for you, as well as how to donate in a way that brings the greatest amount of benefit to both your company and the receiving agency if it is a good move.
Step #3: Pick a Reputable Charity
Okay. You’ve got the money and your accountant has given you a thumbs-up on donating; now the next step is to pick a reputable charity. After all, it would be horrible to donate your hard-earned cash just to find out that the organization or agency you gave it to pocketed it and it didn’t get to the people it was supposed to help.
To prevent this from happening, the Federal Trade Commission (FTC) offers a Charity Checklist that you can use to ensure that the charity you choose is reputable. Here is some of the advice it contains:
- In addition to getting detailed information from the charity itself, do your own research online and verify that they are reputable. The best way to do this is to enter the organization’s name followed by “scam” and see what, if anything, comes up.
- Search the IRS website to find out for yourself whether the charitable organization is eligible to receive tax-deductible contributions.
- Never, ever, ever give a cash donation or provide your credit card number or bank account information. Instead, always pay by check and also always ask for a receipt (for tax purposes).
If, in doing your research, you determine that the charity is bogus, consider filing a complaint with the FTC to help protect other individuals and business owners from giving the scamming charity any money that likely will never end up where they say it will go.
If you’re a small business owner, what is your position on donating to charities? Do you do it or not? Feel free to share below!
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