Don’t Do Something Good and Then Be Angry; Knowing What Qualifies as a Tax Deduction

Many years ago, while in the US Air Force, I was tasked with the additional duty of being the VITA (Volunteer Income Tax Assistance) representative for our unit.  With my interest in accounting, I was very excited about this opportunity.

Although this was a long time ago, I still remember one couple that I helped.  They had donated a large sum of money to a family that was in crisis and needed help.  They wanted to take the deduction for a charitable contribution, but since they gave the money directly to the family this was not possible.  I explained to them, that if they had given the money to a church or another non-profit organization, then they could have taken the deduction.  However, you cannot specify that the contribution go to a specific person.  This would make the contribution nondeductible.  They could have donated the money to an organization that assists families in crisis and the family in crisis could have applied for financial assistance through the organization. As a side note, you must itemize your taxes to take a charitable contribution deduction.

After this experience I realized that most people need guidance and help during the tax year to make these decisions.  They don’t need to find out after the fact because that doesn’t do them any good.  This is one of the main reasons that our policy at Excerebus is to set our family members (clients) up on a monthly system.   This allows me to review what is going on and recommend strategies to make any necessary changes before the end of the year, when it will do the most good.

Here are a few more tips for business owners on charitable contributions:

If your donation is not going to a qualified Sec. 501(c)(3) organization you may consider classifying it as an advertising or marketing expense.  The IRS states that you must receive a direct benefit from the expense.  That means that just putting your logo out there doesn’t qualify.  However, if it is your logo along with pricing information, promotions you have in place or language to encourage a sale, you can deduct it as an advertising or marketing expense.

When a contribution is made and you receive something in return, be sure to reduce the charitable contribution amount by the fair market value of the goods or service received.

Always keep accurate records of charitable contributions made and ask for a receipt whenever possible.  Any amount over $250 will need a letter from the organization describing the amount you donated, whether you received anything in return and the value of the goods or services.

Ensuring your business continues, means knowing how to manage expenses and understand what to do in order to claim them on your taxes.  Keeping more of what you earn is vital to your ability to continue making those charitable contributions and those donations are important because you are making a difference in the world!

If you need help, use the contact button on this site and we can discuss the opportunity to become partners on your way to success.

To find organizations that are qualified to receive deductible contributions, go to https://www.irs.gov/charities-non-profits

For more information on donations, “IRS Publication 526; Charitable Contributions” can be found at https://www.irs.gov/forms-pubs/about-publication-526

Categories: Tax Information

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