As we navigate the ever-evolving situation that is 2020, we must not lose focus on the important things. Charitable giving is an important consideration for any business, and for a number of different reasons. Charitable giving can be an important tool financially, socially, and as a component of your company culture. When all of these facets are taken into consideration, a properly designed charitable giving plan for your business can enhance many aspects of both your company and your professional life.
Community and Culture
Charitable giving can be an important means for connecting your business to the community around it. This may play out in a number of ways. Charitable giving can support charities and non-profits who are doing good work in your community for causes you support. In doing so, you have the opportunity to elevate your business profile and visibility in the eyes of the community, which has some obvious advantages for all concerned. A related effect of charitable giving comes in a form of networking—you may have the chance to engage with potential allies or business collaborations that you may not have otherwise discovered. As many businesses are re-centering or pivoting in light of the COVID-19 pandemic, you may find that new allies lead to new opportunities as we move into the second half of the year.
The changes which come from charitable giving are not only external. Charitable giving can become a way to elevate your company culture by turning it into a team-building exercise. Getting everyone involved in your business to participate in a voluntary and fun way can do a lot for morale, purpose, and company identity. Employee satisfaction is key to employee retention and performance, and your charitable activities can be a step in the right direction on those fronts.
While we should strive to lead with our ideals and do the right thing, business activities always have a financial component. The fact is that charitable giving can have some tax benefits for your business, a set of IRS rules intended to encourage charitable giving on the business level. There are myriad rules and regulations around charitable giving for businesses—far more than we can cover in detail here. On the federal level, businesses may deduct donations to qualified organizations as defined under section 170(c) of the Internal Revenue Code. This list of organizations includes the following among others:
- A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;
- A church, synagogue, or other religious organization;
- A war veterans’ organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;
- A nonprofit volunteer fire company;
- A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.
This list is a bit detailed, but it is also broad and inclusive; it’s likely that your favorite local charity or nonprofit falls into one of these categories. The full list is available on the IRS’s website, and you can watch our We Are Talking Money Live episode on Charitable Giving and Gifting along with Dissecting the Form 990.
There are some limits to what may be deducted. While your financial or tax adviser can tell you more about your particular situation, in general, business deductions for charitable activities fall into one of three categories:
- Gifts of equipment or property
- Travel expense incurred while helping a charitable organization
Once you’ve made your donation, you’ll have to assess its value appropriately and then file the relevant forms with the IRS and your state revenue agency. It’s a bit of a process but it’s designed to protect both your business and the nonprofit in question from any appearance of wrongdoing.
Charitable giving is an important aspect of any business’s practices under normal circumstances. It is especially important just now as so many nonprofits are in need. Your business can make a difference both for a cause you support and for your business itself. With the right guidance from your financial adviser, you’ll be on your way to a successful culture of giving and charity.