Brief Guide For Corporate Donations To Charity

Qualifying donations

To qualify for the charitable tax deduction, your corporation must make a donation to a qualified charity such as Giving Center. Giving Center, and charitable organizations like it, can issue donation receipts for the gifts received from both individuals and corporations. Only an IRS approved charity is qualified to give a donation receipt that can provide your cooperation of tax deduction. The Internal Revenue Service (IRS) maintains a list of qualified charities, like Giving Center, who are allowed to issue official donation receipts for charitable gifts.
The IRS considers a donation to be a voluntary transfer of money or property for which you expect and receive no consideration. You are able to make these charitable donations by cash or in kind. A donation is irrevocable. Donation receipts are issued for the eligible amount of the donation to charity, this is usually the value of the donation. In certain cases, an advantage may be deemed to be received which, in turn, will reduce the amount of the eligible donation. An advantage is described as “generally the total value of any property, service, compensation, use or any other benefit you are entitled to as partial consideration for, or in gratitude for, the charitable gift.” An example of this could be if you purchased a table for a charity benefit that cost $500. Meanwhile, the value of the food and party is considered an advantage with a value of $250. This means the eligible donation amount would be $250 ($500 less the $250 advantage amount).

Corporate donation tax deduction

Corporations are entitled to a tax deduction for the charitable donation amount against their income. When reducing taxable income, the corporation reduces their tax liability. It is important to note that a corporation doesn’t need to claim the full donation in a particular year. Donations ma be carried forward for up to five years. A corporation can claim a deduction for charitable donations up to 50% of the corporation’s adjusted gross income (AGI) of the year.

Donating publicly traded securities

If your corporation wants to make a cash donation but does not have the cash readily available, it may have to sell some securities to obtain the cash needed. If the fair market value (FMV) exceeds its adjusted cost base (ACB), it will trigger a capital gain in the corporation. The corporation must pay tax on the taxable portion of the capital gain. Once the corporation receives the cash proceeds from the sale, it may donate cash to to charities such as Giving Center, and deduct the amount donated from its taxable income. A corporation can also donate certain securities directly to charity. This can be a very effective donation strategy if your corporation has securities with large accrued capital gains. The corporation can deduct the full FMV of the securities donated to Giving Center against its income, reducing overall taxes payable. In order to qualify for the elimination of capital gains, the donated securities can be, but not limited to:
● shares
● bonds
● stocks

Conclusion

Corporate charitable donations gives its shareholders a chance to support their community while receiving tax incentives at the same time. By donating appreciated publicly traded securities through your private corporation, you are able to receive two benefits, eliminating capital gains tax on the securities donated, getting a tax deduction for the FMV of the securities donated. Speak to a qualified tax adviser to find out if donating through your corporation makes sense in your circumstances.

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