The federal Small Business Administration reports that about 75% of small business owners donate some portion of their profits to charity each year. The average contribution is around 6% of earnings. Fulfilling philanthropic intentions has emotional rewards. And there can also be tangible benefits for your business. The more you align your charitable intentions with your own passions, the greater the potential payoff.
One possible advantage is that your company’s employees may truly get involved in your charitable activities. So, they may become more productive and stay at your firm longer.
Example: Janice Peters is the primary owner of a company that does printing and mailing. She is also heavily committed to animal rescue. She owns several dogs and cats that have been rescued from shelters. She temporarily fosters other animals for eventual adoption. And she contributes to animal welfare charities. Janice’s donations come from her business profits and from her personal funds.
Related: This Outdoor-Gear-For-Good Company Proves You Can Be A Benefit Corporation From Day One
Getting your employees involved
To get her employees involved, Janice provides financial incentives for pet rescue and volunteering in shelters. Employees have days for bringing their well-behaved pets to work. And Janice’s company sponsors relevant fundraisers. The result of these efforts has been her ability to hire like-minded people and exceptional retention of valued workers.
Such opportunities to mix business, charity, and advocacy are unlimited. A business owner who is a sports fan might back a youth team, for instance. If the cause you support relates to the environment, you might mention that your company is supporting a sustainability initiative, an idea that will resonate with many people. Yet another approach is to allow employees to have a voice in choosing charities the company will support.
Spreading the word
Business benefits from charitable endeavors can be external as well as internal. Janice highlights her company’s animal rescue activities on its website and through its social media presence. This makes her company memorable to potential customers. She also sits on the board of some local animal rescue groups, where the other board members include business owners who share her interest. When they need printing and mailing, Janice’s company often comes to mind.
Tax treatment
Companies may very well reap tax benefits from their donations. C corporations can deduct charitable contributions against business income. These deductions are limited to ten percent of taxable income. Unused charitable contributions are carried forward for five years. After five years, the deduction is generally lost.
Pass-through entities (S corporations and partnerships) fair better under current tax laws. They may pass through such deductions to business owners who itemize deductions on Schedule A of their personal tax returns. If your company receives a direct benefit from its philanthropy, the outlay may be deductible as a business expense rather than as a charitable contribution. For instance, say you support a Little League team that advertises your company’s name on its uniforms. This may qualify as a deductible business expense.
Services provided by you or your employees are not deductible. However, expenses involved while volunteering may count as a charitable contribution. Donations of property might be deductible at fair market value; special rules apply to donations from inventory.
Our office can help you determine whether a philanthropic outlay is a business expense or a charitable contribution. We can also explain how to obtain an acceptable valuation for any goods you might be donating. Maximizing the tax benefits will help your business get the most from its efforts to help others.