- Educate yourself about the different types of donations you can make.
- Understand your unique tax implications.
- Set a budget and target recipients.
- Develop a written policy.
- Research recipient organizations.
- Be ok with saying no.
As a business owner, you’re likely no stranger to “ask” letters from community groups and charitable initiatives. And that’s ok! Supporting causes in your local community can bring in sales, solidify relationships, impact employee morale and increase awareness of your business in the market.
But when your heart tells you to give, don’t just impulsively sign a donation check. Like any business expense, the amount you donate should be budgeted annually. By establishing a reasonable amount and creating specific giving guidelines, compassion and sensibility can go hand in hand.
How will the amounts and types of donations you make impact your bottom line, cash flow, and tax liabilities? Keep in mind when budgeting that “marketing” and “donating” are very different expenses. Marketing and advertising expenses should have some payback tied to sales, while charitable giving is just that, “giving.” It’s a cash outflow with no fiscal return to the company – beyond a warm, fuzzy feeling.
Company giving can be in the form of multiple year pledges, a lump sum, donated merchandise, buying event tickets and auction items, or working volunteer hours. Make the most of your donation dollars by educating yourself about all the tax implications. A CPA or tax professional can answer questions and tell you how to report the types of donations you are considering.
The various tax benefits depend on the situation and the gift. While you can’t write off time spent volunteering, you may be able to deduct related expenses, such as mileage. Taxable value is a factor. Say you buy football tickets worth $400 at a charity auction for $1,000; your donation is the $600 difference beyond the actual $400 value of the tickets.
Set a budget and target recipients
Set a limit for annual donations in an amount that will not hurt your company’s operating ability. You need not spend that maximum; knowing your limit will help prioritize donations and boost impact. You might give to local individuals or groups, national or global organizations, like Red Cross disaster relief, capital campaigns, scholarships or community foundations to name a few.
Verify recipient organizations
Take a careful look at each organization seeking your donation to verify their non-profit status, understand their mission, and determine how your donation will be spent – before you donate.
Legitimate non-profits will likely have a website, a good source of information on agency history, activities, leadership and operational performance. If you want additional information, don’t be shy in asking for an annual report or board roster.
Exempt Organizations Select Check is a helpful online search tool for verifying an exempt organization’s federal tax status and viewing filings. Another information source is Charity Navigator, which reports on the spending of non-profit organizations, including operating expenses as a percentage of donations received.
Develop a written policy
Avoid wasting time responding to donation requests by writing a brief charitable giving policy. Post it on your website with your own “request for donation form” to ensure you get specific information you can use in making giving decisions. Some requests will be easily “weeded out” if they do not match your policies and non-profits will appreciate knowing your guidelines, annual budget and giving preferences.
You can’t help everyone.
You’re likely to receive far more requests than you can fund. Saying no is easier with a defined annual budget and a targeted giving plan. Be firm and prompt in declining requests; keep notes on any requests you may consider funding in next year’s budget.
Want more information? Don’t hesitate to ask – MidWestOne loves to give. Contact us!