It is true that businesses are not charitable institutions, but that doesn’t necessarily mean businesses cannot perform charitable works. In fact, they are the ones more capable of doing so, and they have already contributed a lot to many charitable programs. Now, you may wonder why they still do that despite the fact that it is unprofitable to do so. Let’s find out.
If you are a business owner, helping others through charitable giving can be fulfilling. Aside from that, you can see that your effort and your money have not been wasted. All these may be enough to justify the significance of charitable giving.
Is there any other benefit other than these above situations? Yes, there is as businesses who perform charitable giving can enjoy much-needed tax benefits.
Today, we will go further into detail about understanding charitable giving when it comes to your business.
Why Do Businesses Receive Tax Benefits After Charitable Giving?
The government promotes charity and welfare in our society in many ways, and taxation is one of them. The logic behind it is that the government may deduct a tax, and use a specific amount from it for public service such as charity and welfare programs.
Since businesses are the ones who typically pay higher taxes, they will appreciate if their taxes have more deductions because they help others. Therefore, they are encouraged by the law to play such a role in our society.
What Is Considered by the IRS as Charitable Giving?
Generally speaking, we know what charity means, and we may also have our own standard of helping others. In taxation, the IRS has its own standard to determine, which is considered charitable giving and, which is not.
This is very important in order to measure how much tax should be deducted from a particular donor if his or her donation is qualified. And to know which kind of charitable giving is qualified, to which below are a few examples:
• Cash Donations
• Donation in Kinds
• Miscellaneous Expenses for Volunteering
Cash donations are the most popular form of charitable giving. However, not all types of cash donations can be qualified. There are cash donations given directly to people themselves, and though this is a noble act, it’s not considered as charitable giving in the eyes of IRS because it’s difficult to account for such a transaction based on the current tax system.
Qualified cash donations are donations given to qualified charitable organizations such as churches, non-profit organizations, trust funds, and foundations.
Donation in Kind
This type of donation which is considered by the IRS as charitable giving is a donation in the form of items, inventory, property, equipment, novelty, and other tangible assets. If you are in the business of selling old coins and paper money like Zimbabwe dollars, and you wish to donate some of these coins or paper money, they are not considered a cash donation. Instead, they will fall in the category of a novelty, so they are donations in kind.
Miscellaneous expenses are applicable if you volunteer for a charitable program. While volunteering, you may incur expenses such as travel and other miscellaneous expenses. All these will have certain deductions; however, there is no deduction to the service you render.
Helping others is not the only job of charitable institutions it’s the responsibility of all members of society, and that includes businesses. We can help people by helping charitable organizations who are already helping others. Even businesses can benefit from charitable giving by sharing something.