Accounting for Business Charitable Giving

Last year $2.47B was donated to US nonprofit organizations on GivingTuesday, a whopping 19% increase over the previous year. Only time will tell if this year surpasses last year’s record-breaking numbers. But what we know for sure is that on this GivingTuesday both individuals and companies nationwide will give to their favorite nonprofit charities.

As a business owner, you need to be aware of how these charitable contributions will be accounted for on your books not just on GivingTuesday, but year-round.

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Make Financial Contributions
Before contributing to a nonprofit, check to ensure that they are a registered 501(c) (3) organization. The IRS maintains a current list of tax exempt charities to make verifying their qualified status easy. This distinction will be important for determining how to account for your donation. The IRS states that, 

Contributions to charitable organizations may be deducted up to 50% of adjusted gross income computed without regard to net operating loss carrybacks. Contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations are limited to 30% adjusted gross income (computed without regard to net operating loss carrybacks).

​Consider Non-Financial Giving
Data shows that, on average, small businesses donate 6% of their profits to charity. However, these donations are not solely financial in nature. While GivingTuesday was originally started as a financially-based initiative, companies and individuals alike are now giving of more than just their finances. In fact, last year 37% of GivingTuesday participants gave of their time and goods and another, while another 35% gave of both non-financial items and money.

Charitable contributions do not just need to be cash – they can also be in-kind gifts of property and equipment. These as well as travel expenses incurred while contributing are deductible. However, how you account for your donation will depend on what you are donating. A cash donation is treated differently than volunteering, hosting a charity drive, or sponsoring an event. And the value of the donation can vary significantly based on what you are donating as well. For example, the value of used goods that are donated will be recorded at their fair market value rather than the value you originally paid. You must understand the rules around these differences before accounting for them on your books.

Depending on the nature of the donation, noncash charitable contributions may also require additional tax paperwork be filed, like an 8283 Form. Consult with your accountant about the tax implications associated with various forms of giving before deciding how much to give or what to commit to doing on behalf of a charity of your choosing.

Bring in The Pros
While a staff accountant may make recommendations related to charitable giving, a higher level accounting professional, like a senior accountant, accounting manager, or controller is more likely to have the experience needed to offer sound financial advice in this area. Where giving is significant enough to shape your tax strategy, an accountant that specializes in tax will have the acumen needed to provide actionable advice.

Always consult with a tax accountant for the most up-to-date tax information pertaining to your company’s charitable giving. A tax advisor can consult on your specific circumstances and goals to give you information that is customized for your business needs.

Keep Good Records
Tax advisors are not the only financial professionals you will need to lean on when accounting for business charitable contributions. Regardless of the type of donation, keeping good records of all your charitable contributions is critically important because the IRS requires proof of all single donations of more than $250.

Ensure your bookkeeper is keeping anything that serves as a receipt of your donation, such as:

• Donation acknowledgement letters
• Canceled checks
• Bank account statements
• Credit card statements
• Payroll deduction records
• Volunteer hour logs

Understand Your Goals
We would be remiss if we did not remind business owners to think about their goals for charitable giving.

The financial benefits associated with charitable giving are meant to offset the cost of doing so, which is to say that they tax break you get is the tradeoff that the government is willing to give you for the time, effort, and finances required for you to make that donation. However, those benefits should never be your primary motivation. Never donate to a charity solely for the tax write-off!

Find a charity that fits your company mission or interests and research it extensively before writing the check or getting involved. Charitable donations should be made with an earnest desire to help the organization or foundation receiving the funds, not just as a tax mitigation strategy.

If you are just looking to reduce your tax burden but cannot afford the kind of outflow of cash that accompanies a financial donation, there are other strategies to use. A senior accountant can advise on the best way to maintain positive cash flow while working to reduce your taxes.

As your business accounting gets more complicated, hire an experienced accountant to provide the expertise you need. A knowledgeable accountant will ensure your charitable contributions are accounted for correctly while working to minimize your tax burden.