By Michael Rawls, Senior Partner
For decades, major corporations have made it a tradition to make charitable donations. These donations are reliable public-image boosters and ways to bond with the communities that support the corporations. But charitable donations aren’t exclusively the domain of Fortune 500 companies; they can do a lot for smaller, local businesses as well.
Whether it’s a gift to a local nonprofit or part of a larger, long-term philanthropic strategy, aiding charities offers small businesses many benefits, both reputational and financial. Today, let’s look at how charitable donations can benefit both your business and the community you serve.
Why Charitable Donations Matter for Small Businesses
The surface benefits of giving to charity are relatively obvious. It enhances your image within the community and business circles. It shows an openness to using your resources to help those in need. When thoughtfully planned, charitable donations can be tangible reinforcements of your business’s mission statement.
Philanthropic efforts can also be financially helpful to a small business. Depending on your company’s structure and industry regulations, you may enjoy tax benefits and savings from charitable gifts. Here’s how.
Tax Benefits of Charitable Donations
The Internal Revenue Service (IRS) allows businesses to deduct gifts to qualified charities from their taxable income. These include both cash and property donations.
Businesses classified as C corporations can deduct up to 10% of their taxable income for charity. In other business structures (sole proprietorships, partnerships, and S corporations), charitable donations are credited to owners and shareholders, who can itemize and deduct the gifts on their individual income tax returns.
There are a few conditions for deducting charity gifts from taxable income. The charity or nonprofit you donate to must provide written confirmation of your donation. Additionally, to stave off potential problems and support your company in case of an audit, your accountant or designee must keep extensively detailed records of all your charitable transactions.
Choosing the Right Charity
Charities and nonprofits come in all shapes and sizes. The IRS reports there are around 1.85 million such organizations in America alone. The primary guidance for choosing an organization to work with is to find one that reflects your company’s values and resonates with your customer base.
When researching charities, carefully review each organization’s website. Look for the programs and expenses your donation might help. A few sites, such as Guidestar and Give.org, report on every charity’s spending and resource planning.
Keep an eye out for red flags like complaints and actions filed against the charity, and take note of how the organization was able to resolve the issues.
Tips for Making Charitable Donations
Here are some approaches to take with your small business’s charitable donation plans.
Consider Strategic Giving Vehicles
Structured charitable vehicles can streamline your donations, provide tax advantages, and set up long-term giving programs. These include donor-advised funds (DAFs), charitable remainder trusts (CRTs), foundations, and sponsorships. Consult with a financial advisor to find the right vehicle for your company.
Schedule Donations Wisely
Many companies give charitable donations during the year-end holidays. But if your company is having a good year, it might be better to donate throughout the year to offset high taxes. You might also consider aggregating a few years of donations into a single gift to get around standard-deduction thresholds.
Avoid Common Mistakes
Even a few minor mistakes can upend your good intentions in charitable donations. Steer clear of organizations that aren’t qualified charities. Document every one of your gifts properly to satisfy potential auditors. At tax time, remember that only your donations of cash and inventory are deductible, not time spent volunteering.
Build a Solid Strategy for Charitable Donations
Lumos Wealth Advisors helps small businesses with all aspects of their financial standing, including charitable programs. Contact us to learn how we can position your company to benefit the most from your donations.
To schedule a meeting, call (804) 330-7800 or email [email protected].
About Michael
Michael Rawls is a Senior Partner, Financial Advisor, and Investment Fiduciary at Lumos, a financial advisory firm serving individuals, retirees, and business owners throughout Richmond, Virginia. Since becoming an advisor in 2013, Michael has been dedicated to helping clients navigate life’s financial phases with trust, transparency, and personalized strategies. His approach centers on serving as a trusted advocate for his clients, going beyond investment advice to offer comprehensive guidance on lifestyle planning, wealth management, and estate planning. He takes pride in building long-standing relationships and helping clients make the most of financial opportunities, acting as their personal CFO to help align their financial goals with their everyday lives.
A Virginia native, Michael earned his degree from James Madison University and is deeply connected to the community he serves. Outside of work, he enjoys spending time with his wife, son and daughter, golfing, traveling, and exploring local hiking trails. He believes that a well-rounded perspective benefits both his professional and personal life. To learn more about Michael, connect with him on LinkedIn.
*Michael Rawls is not affiliated with LPL Financial.
Advisory services offered through Capital Asset Advisory Services LLC. dba CG Advisory Services, a registered investment adviser with the U.S. Securities and Exchange Commission. This article is for informational purposes only and does not constitute investment, tax, or legal advice. Investing involves risk, including potential loss of principal. Consult a financial professional before making investment decisions.
