Charitable gifts allow even small businesses to give back to the community that supports them, in addition to enhancing their reputation and creating goodwill by being a good corporate citizen. Tax free charitable contributions can also help your company's bottom line, but you'll need to do a little planning to maximize the benefits for your business and for the charities you donate to. Charitable contributions for beginners isn't too complex, however. If you're new to business charitable contributions, you'll want to research tax laws, evaluate the charities you're considering donating to, and put together a strategic plan that considers your budget, your client base and your personal interests.

If you're new to business charitable contributions, you'll want to research tax laws, evaluate the charities you're considering donating to, and put together a strategic plan that considers your budget, your client base and your personal interests. Before you make a charitable donation:

1. Research a charity before making a business charitable contribution.
2. Understand the tax laws related to charitable gifts.
3. Enlist a consultant to help you make strategic charitable contributions.
   

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Research charities before making a business charitable donation

There are hundreds of thousands of charities in the United States, and even if you choose to donate locally, you'll still probably have hundreds of groups to decide between. They may all sound like worthy causes, but without some investigation, you can't be sure of how the organization handles its resources or programs. Many websites offer searchable listings of charitable groups, along with ratings and evaluations.

I recommend: Charity Navigator offers detailed evaluations of charities, including lists like "Top 10 Charities Overpaying their For-Profit Fundraisers" and "Top 10 Charities in Deep Financial Trouble." GuideStar is a searchable, online database featuring information on 1.7 million nonprofits. You can register for free, but for access to more information, sign up for GuideStar Select or GuideStar Premium.

Learn the tax laws that govern business charitable donations

Both donors and nonprofits must comply with state and federal tax laws, so you'll need to research these laws before you make any charitable contribution.

I recommend: The website for the Internal Revenue Service has a section dedicated to nonprofit organizations; check out the page for contributors. Or, you may want to consult a financial adviser, such as T. Rowe Price, which offers information and advice through the T. Rowe Price Program for Charitable Giving.

Hire a consultant to help you create a charitable contribution strategy

For businesses, it's important to be strategic in the way you make charitable donations. You'll need to consider how much of your budget you can devote to charitable giving, in addition to locating charities that are based in your community, and those that can help raise your profile and boost your reputation. To put all this together, you may want to hire a consultant who specializes in helping small businesses decide how to allot their contributions.

I recommend: ASG Advisors can help guide you through the charitable giving process from start to finish. Their services include strategic planning, philanthropic research and gift monitoring, and are designed to companies, executives and even public officials maximize their impact on the community through philanthropy. The Giving Back Fund, a national public charity, specializes in helping individuals in entertainment and sports get started in philanthropy. Through the fund's philanthropic consulting and management services, it hopes to encourages philanthropy among high-profile individuals who can serve as role models to others.

Tax-free charitable contributions are good for business in a number of ways. As a good corporate citizen, you want to give back to the community that supports you with charitable donations as part of your karmic business model. And you want to direct your charitable gifts to organizations that serve and are served by your customer base.

If you have not set up a regular business charitable contributions program, take the time to start. Use the tax-free charitable contributions to offset your tax burden and increase your goodwill in the area where your business is located. Make the charitable contributions an integral part of your marketing and public relations strategy. This is no time for modesty. Nonprofit organizations appreciate your charitable donations and are happy to give you exposure and sing your praises. Begin this process by doing the following:

1. Choose two or three nonprofits to target your business charitable contribution.

2. Sponsor a popular event with a tax-free contribution.

3. Assign an employee to keep the accounting for charitable contributions or outsource the job.

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Find like-minded groups to support with business charitable donations

Use your business charitable donations to reach your customer base or to support an organization that is important to a major client. For example, if your target customer is families, find a nonprofit that supports local schools. If your biggest client has a blind child, get your company involved in a nonprofit for the blind such as the Lions Club.

I recommend: Contact your local United Way office for examples of charitable contributions that are most needed in your community. They also can help to guide you to a like-minded type of organization. Use Charity Navigator to evaluate the efficiency and financial health of local and national charities. Find links to popular nonprofits here as well.

Attach your name to a good cause with charitable gifts

Sponsors are used for popular events such as golf tournaments, running events and fundraisers. Many charitable organizations receive a plethora of local media attention and will include your company name in programs, on banners and in advertising brochures. In addition to all the feel-good benefits and marketing opportunities you'll get from your charitable contributions plan, you also will be exposed to networking opportunities when you attend the event.

I recommend: The Susan B. Komen for the Cure organization is a masterful group of marketing experts that raise business charitable contributions for breast cancer research. The American Red Cross is always in the media spotlight when disasters hit. They serve clients both locally and nationally.

Designate a business charitable contribution point person

Among your staff, there is most likely one person with sensitivity to local charities that can help guide your charitable gifts program. Large corporations often have an entire department to take care of their philanthropy. Other companies choose to outsource their charitable contributions efforts or bring in a consultant as they make their first decisions.

I recommend: Frugal Marketing.com is a cause-based consultancy for businesses to find the right place to put their business charitable donation. ResultsLab can offer advice on choosing a business charitable contributions recipient as well as help with positioning and marketing efforts related to your cause.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Offer paid time for all employees to become involved in a local charity. You can spread the tax-free contribution around a little more while building goodwill in more areas than you could as the owner, chief officer or philanthropy officer.

As a small business owner, your responsibility is not only to yourself and your employees, but to your community, and making tax-free charitable contributions can help here. Using some of your profits to help non-profit organizations reduces your gross income and makes you look good to your customers and other potential clients.

However, working with charitable contributions can be confusing. You may wonder which charities qualify and how you can apply a tax free contribution to your books. Once you get the hang of it, making these contributions won't seem tricky at all. Consider the following tips for making a business charitable donation:

1. Make a single charitable gift. This can be done more than once over the course of your fiscal year, and you can deduct it from your books.

2. Sponsor a non-profit. This can be ongoing or just for a single event. This type of charitable contribution can really get your name out in the community.

3. Write off any allowable gifts and sponsorships. While donating this money is helping the non-profit, you want to make sure it helps your business as well.

Action Steps
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Start out with simple charitable gifts

Making a single or repeating gift to a charity is the most basic way you can support a cause. Many charities will give you a plaque or letter of appreciation to display at your business and also mention you in any type of newsletter they put out. If the donation is large enough, you may even get some kind of recognition at the facility, like your logo put up or an engraving on a plaque in the lobby. Most gifts are deductible as far as taxes are concerned.

I recommend: Buying Influence explains the process you can use to get started with business charitable contributions. Always check with the Internal Revenue Service to see what kinds of charitable donations may be written off.

Move up to charitable contributions via sponsorships

Corporate sponsorship can give you some great advertising and expand your community's knowledge of your business. By lending your name to a cause you support, you not only enhance the coffers of that charity, you are telling the public that you care about a cause and are willing to donate money or time to help out. Examples include sponsoring a hole at a charity golf tournament, a pet at an animal rescue, or even giving a product or service for a silent auction. This type of giving is tax-deductible as well.

I recommend: See some examples of the marketing event sponsorship at the Triangle United Way and American Association of Colleges of Osteopathic Medicine. Check out the advice from community-organization-fundraising.com to know what to expect when meeting with potential contribution recipients.

Ensure that your accounting for charitable contributions is spot-on

Remember that generally, only 50% of your adjusted gross income can be deducted for charitable purposes. If you're getting advertising out of the gift or sponsorship, the classification of the gift as a business charitable contribution may not be so clear. When in doubt, seek advice from an accountant or other tax professional.

I recommend: Check out the tax tips from Intuit, which reminds small business owners to track their deductions and always leave a paper trail. The Family Services Center has a chart that explains the differences between individual tax write-offs and businesses deductions.

More and more businesses are discovering the tax benefits of making charitable contributions. If you are considering giving to charity, or your business already makes charitable contributions, you will want to ensure that anyone handling your business accounting understands the impact of that giving on your company's tax situation. Learning basic charitable contribution terms will give your accounting staff the background knowledge they need to deal with charitable contribution regulations; it will also give them the vocabulary they need in order to ask meaningful questions.

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Quid pro quo contributions

This type of donation involves a business contribution that is part charitable donation and part purchase of a goods or service. An example would be when your business purchases a ticket to a charitable event, but the donation to the organization is more than the cost of the ticket.

I recommend: The Internal Revenue Service has an easy to read explanation of quid pro quo contributions on its website.

Qualified charitable organizations

Businesses must ensure that the charitable donations they make are to qualified organizations. Not all organizations qualify and donations made to unqualified organizations cannot be considered as a tax deduction. Only specific types of organizations are qualified, such as governments, fraternal groups, non-profits, and corporations or foundations meeting certain requirements.

I recommend: WorldWideWeb Tax has a great explanation of qualified charitable organizations, including a list of what types of organizations qualify and those that don't.

Planned giving

Planned giving means exactly what it says, and, as a business professional, it makes sense to plan your charitable donations. You can do this by putting charitable contributions in your annual budget, or you can make a commitment to a specific charity and make planned donations monthly, quarterly, etc.

I recommend: Those handling your business accounting will want to use the Partnership for Philanthropic Planning website for the most up-to-date resources and tax information for your planned giving.

Valuation

Valuation involves the process of determining the value of items that you donate. Accountants need to understand the process of determining the correct value in order to stay in compliance with current tax laws.

I recommend: The Internal Revenue Service is the best source for current regulations pertaining to all areas of valuation.

Substantiation and disclosure

Think of substantiation and disclosure as your proof of donation or your receipt.

I recommend: The Planned Giving Design Center lists the rules and requirements that anyone dealing with accounting should know in terms of substantiation and disclosure.

Tax preparation software

Anyone working with business finances will want to consider purchasing tax preparation software. This software is especially programmed to help your business prepare their taxes including charitable giving.

I recommend: CPA Online has a search feature to help your business select tax preparation software that will work well with specific types of business. You can research which one will work the best for you and will fit with the amount of charitable contributions you make.