Turning Donations into Business Tax Savings

Linda Jenkins, July 14 2015

donations and business taxes

If you own a business and make annual donations to worthy non-profits, you may not be getting the full tax benefits from your generous acts. When planning to give a donation you should always seek out ways to turn it into a legitimate, deductible business tax expense, so you can reap the maximum tax savings while still helping out the charity of your choice.

The best way to turn a donation into a business expense is to seek out "sponsorship" opportunities as opposed to just giving a straight donation. For example, let's say your favorite charity is the Harlem Children's Zone, and they are having donors out to a golfing event to raise money for the organization. If you offer to sponsor a hole by giving HCZ $500 in exchange for your company logo being diplayed on the 4th hole, you are in effect advertising your business. Advertising costs are fully tax deductible. Taking this deduction allows you to save on federal, state and self employment taxes. Just make sure you save your receipt and written materials about the sponsorship. You may also want to take a photo of the event and share it on your company's social media feeds just to have a little more documentation in case you are ever audited, and to create a bit more buzz for your own company and the charity. 

On the other hand, if you had just given a check as a straight donation, you would only save on your marginal federal tax rate, if even that. Beware that once your personal earnings surpass about $120,000/yr as a single person, or $150,000/yr as a married couple, the alternative minimum tax rate may come into effect and nullify any tax benefit to giving direct donations. Therefore, if you are in a higher tax bracket, you MUST convert donations into business expenses to realize any financial benefit from the transaction.

Fortunately, most established charities get this, and offer business owners many opportunities for sponsoring events. Your job is to recognize and take advantage of these savings while also doing good through your philanthropic efforts.