Small Business Guide to Charitable Giving

By Andreas Rivera, B2B Staff WriterDecember 19, 2017 08:31 am EST

According to the U.S. Small Business Association, about 75 percent of small businesses donate to charities each year. Besides benefiting the charity your donation is going toward, there are financial advantages as well as other benefits your business earns when it donates its time and money.

Why give? Connect with your community

To put it bluntly, charitable giving is good PR, and it's just good sense for businesses, especially small businesses that are dependent on their community to keep them in business.

"What distinguishes small business from large-scale corporations is the connection with the community,” Kristen Fusaro-Pizzo, owner of Bath, Body, Candle Moments, said. "People want to … shop at a small business because a small business cares about them, as individuals, and the causes they care about."

Charitable giving demonstrates that you give back to the community and that you're in business not just make a profit from it. As a small business, while you don't get as large a tax deduction that large corporations and enterprises do, don't overlook the other benefits you glean from philanthropy.

"As a single store retailer, it is important for us to give back to the community. There isn't really any tax benefit for us, so it comes back to being a part of our community," Brad Schweig, vice president of operations for Sunnyland Furniture. "We do think it helps us from a marketing standpoint as we want people to know that we are local, our team is local, and we support making our local community a better place."

Charitable giving is also a way to build alliances with other organizations and network with individuals who could become potential partners.

Best practices

To make the most out of your donations, first pick the right organization to donate to. For your donation to qualify for a tax deduction, your chosen charity needs to be a bona fide 501(c) (3) organization. Use the IRS' search tool to confirm the group is registered. For a small business that's tied to the community, it makes sense to pick a local group to donate to.

"We try to focus on smaller local groups versus nationwide organizations, since these are the ones that the bigger companies seem to miss," Schweig said.

If you're concerned about where the money you donate is going to, the website Charity Finder provides ratings and financial breakdowns of thousands of nonprofits to help you determine if your money is being put to good use.

Fusaro-Pizzo suggests picking an organization that's aligned with your brand. For example, a company that has beach branding should get involved with organizations that advocate for clean water or ocean life.

It's also important to keep your chosen charity informed about your plans. Most organizations have a business outreach individual you can contact and coordinate with for your donation and any resulting PR. Even though they're a nonprofit, you still need their permission if you want to use their branding in any press releases or announcements you make to customers.

How much to give?

According to the U.S. Small Business Association, companies donate an average of six percent of their profits to charity. The tax benefit you'll receive will be based on how much you give and your business's revenue. You can give as much as you want, but keep in mind that only up to 50 percent of your adjusted gross income can be written off as a charitable tax deduction. There are few exceptions to this rule depending on the organizations you give to, which limit individual contributions to 20 or 30 percent of your adjusted gross income. You can find those rules in the IRS tax code.

It's best to keep detailed records of charitable donations for your tax return. Most nonprofits will give you a standard form for tax-filing purposes.

Your business isn't limited to just giving money. Volunteer work offers many of the same benefits as a generous monetary gift, and it sends a strong, positive statement to customers and the community in which your business is based.

However, you can only write off certain expenses like materials and not actual labor. So you can't write off your employees' time volunteering at the animal shelter, but you can write off the pet food and the brushes you buy as well as the mileage.

Summary

There are few downsides to charitable giving. It's not as simple as dropping loose change into the donation bucket. Making a large donation requires research and planning. Make sure you and your non-profit partners are both versed in the federal tax code as well as your state's specific tax rules, otherwise you may not be able take those tax deductions, and you could face increased scrutiny from the IRS.