January 29, 2023

How Business Owners Can Make Charitable Contributions Count Toward Tax Write-Offs In 2020

Business Development Manager at Karla Dennis & Associates INC, overseeing the Sales Department in North America. Follow me @karltondennis

Business owners make mistakes all the time. For the everyday entrepreneur, mistakes are just lessons to be learned. My client, a successful CEO named Marco, was just 24 years old when he learned that if you are going to make a big contribution to charity and expect to receive a tax write-off, before you go buying a large presentation check, make sure to do some tax planning. Marco had written a $2,000 check to his favorite local nonprofit and had planned a whole scene for how he was going to deliver the gift. He remembered to write a real check to the charity; however, he forgot to inform his tax advisor before writing the check in his business name.

As a business owner, you may be thinking of additional deductions to help you reduce your tax bill. Here’s how you can receive a tax write-off for your business by donating to your favorite charity or organization.

Deciding Whether To Make Donations Through Your Business Or Personal Name

How much do you plan on contributing? What are your contributions (cash or noncash contributions)? Do your personal taxes already exceed the standard deduction amount? If you already exceed the standard deduction amount on your personal taxes, then it likely makes sense to deduct any charitable contributions there because you won’t have the same limitations that you would if you were an S-corporation or C-corporation.

If you file as an S-corp and wish to make cash contributions, you are limited to a write-off totaling less than $250 unless your business receives a written acknowledgment from the charitable organization showing the cash contribution amount or a description of the property being donated. 

If you are a C-corp, your business entity can make charitable contributions and take deductions for those contributions as long as they are included in the corporate income tax form (Form 1120). That said, there are still limitations. As reported by The Balance, if you personally have made noncash contributions over $500 in any year, you must file Form 8283, which provides details on the donated property, with your tax return. For example, any time you donate a noncash contribution, such as computers, printers or books, that has an estimated value of over $500, you must provide the Internal Revenue Service information on the donated property.

If You Don’t Own A Business

For 2020, if you are not a business owner and you make charitable contributions that exceed the standard deduction amounts — $12,400 if you are a single filer and $24,800 if you are a joint filer — it may make more fiscal sense to take itemized deductions. According to the Tax Policy Center, “Taxpayers who choose to itemize their deductions on their income tax returns can deduct charitable contributions from income that would otherwise be taxed. This lowers the cost of charitable giving by the amount of taxes saved.” If you have expenses that exceed the standard deduction charitable contribution expenses, you can take them as an itemized deduction on your Schedule A form. 

The Bottom Line

Any time you are looking to take a deduction, ask your consultant if it makes sense to make the charitable contribution in your personal name or your business name. Remember Marco? He wrote out the check in his business name, which was an S-corp and therefore could only receive a $250 tax write-off, when he actually could have received a larger deduction. Marco knows better now and will be more prepared next time — and so will you.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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