Now that we’ve hit the fourth quarter of 2016, you might be looking at your bottom line and asking how charitable contributions can affect your tax liability. CAS wants to introduce you to three basic tax rules that will help your business give wisely.
1. Giving wisely depends first of all on your business entity. Rules for charitable donations differ for C corporations, S corporations, limited liability companies, and so on. For example, C corporations reduce taxable income directly, in the amount of their donations. On the other hand, S corporations do not — rather, the deduction is itemized on the owners’ personal return.
2. In addition to the business entity, the type of donation matters. A basic distinction is between cash and non-cash donations. In the case of cash donations, pay attention to favors or benefits provided in return. If your donation results in advertising, for instance, the donation actually qualifies as a business expense.
Non-cash donations can be tricky because they require a valuation. Non-cash donations include excess inventory, real estate, motor vehicles, clothing, or services. Such donations are tricky because the valuation guidelines differ according to your business entity. (Remember rule #1.)
3. Giving wisely means keeping detailed records. You’ll want to record the name of the charity, the date of the donation, and the amount. In the case of non-cash donations it’s also a good idea to note the condition of each item, since the condition can affect the valuation. You might consider taking pictures as part of your record keeping. Most importantly, be sure to ask your charity for written acknowledgment of the donations.
At CAS, we understand how complicated and intricate the rules of charitable giving can be. We can guide you through these intricacies so that you can support your favorite charities while simultaneously maximizing your tax advantages.