Brief Information About C Corporations And Charitable Donations

Are you looking for additional tax write-offs and want to give back in the process? Take a minute to consider tax-deductible donations.

The options are plentiful when it comes to charitable deductions. Donating money is only one way your company can benefit from a charity tax deduction. It is also possible to donate supplies and inventory, employee manpower, real estate and intellectual property.

This is a brief guide to help you familiarize yourself with how tax deductions work, and how you can take advantage of giving to charity.

The Why With Benefits And Tax-Deductible Donations

One obvious financial benefit of a C corporations making charitable donations is receiving a tax write-off for the donation. C corporations benefit greatly from making charitable donations — and not only financially. There are a wide variety of ways that tax-deductible contributions can help your business.

Tax Benefits for C Corporations

C corporations are the only business structure that can take a charitable deduction directly. They may deduct up to 10 percent of taxable income, and this does not vary by the type of donee or contribution.

The C corporation tax rate is now 21%, charitable deductions from C corporations are potentially worth 21% of the amount donated in real cash terms.

That means if a C corporation donates $100,000 to a charity, it will potentially save up to $21,000 in taxes on that donation, this is subject to the 10% of taxable income limitation.

Any excess donations can be carried forward for five years, after which they are lost.

Types of Qualifying Charitable Donations

A wide variety of qualifying charitable deductions exist. Here are some of the ways you can donate.

Cash

Cash gifts are the most common of the tax-deductible donations. Rather than gifting a little bit of money to several different charities, many businesses prefer to choose one or two charities that align with their corporate mission and give generously to them.

Matching contribution campaigns is also an effective strategy for cash giving. For every dollar employees give to a certain charity or foundation, your company could match their gift with another dollar. This can be a wonderful way to get employees on board with your corporate mission as well raise even more money for the charity of your business’ choice.

Inventory, Equipment and Supplies

Your company may also get a charity tax deduction by donating old or unused inventory, equipment or supplies. For example, you could potentially donate electronics, office supplies, clothing, personal care items, cleaning products and toys.

If you own a C corporation, you may deduct the cost of donated inventory, plus half the difference between the cost and fair market value price, not to exceed twice the cost.

This deduction method is thanks IRC Section 170(e) (3). For example, if a product cost $10 and it sells for $30, the difference is $20, half of $20 is $10. The $10 product cost + $10 [being] half the difference comes out to a $20 tax deduction. Since $20 does not exceed twice the product cost, it is allowed.

Corporate Volunteer Days

If you are business partners with a charity for a service day, and your employees serve while on your payroll, their salaries and wages are also tax-deductible donations. However, the value of an employee’s time is not tax deductible.

For example, if you are an attorney, and you provide legal services to a charity. You may not deduct the ‘value’ of your time as a charitable donation. However, might be able to deduct your travel expenses to the charity, as well as other expenses you incurred directly related to providing your pro bono services.

Real Estate and Intellectual Property

Property may also be donated — either physical or intellectual. Rules vary as to how and when you can deduct property. Fair market value is factored in, and an appraisal and valuation generally needs to be made for donated property.

Rules: How Do Tax Deductions Work

To be tax deductible, all donations must be made to qualified tax-exempt nonprofit organizations. You have to donate to an IRS approved 501(c)(3) organization. You are able to ascertain if the organization is qualified by preforming a simple search though the IRS Tax Exempt Organization Search page.

You must also keep adequate records for all charitable donations. For cash contributions, you must have either a bank record that shows the name of the charity, the date of contributions and the amount, or a receipt from the charity showing the same.

Tax-deductible donations over $250 each require a written acknowledgment from the charity showing the charity’s name, date of contribution, description of the property given, with whether the charity gave you any goods/services as a result of the contribution, and if so, include a good faith estimate of the value of those goods/service.

If you make a non-cash charitable gift — other than publicly traded stock — over $5,000 in value, you must obtain a qualified written appraisal of the donated property from a qualified appraiser.