Sunday, December 20, 2009

Getting Tax Breaks From Your Business Charity

I have been searching for articles about tax advice for business charitable giving, as it is important for every business to understand how their charity affects their tax deductions. I first read this article on Businessweek.com and found it on ChristianPF.com. where they have given blanket permission to reprint their articles.

The holidays are a perfect time of year to address this topic as so many businesses are helping out needy causes right before the end of the year and their charity will go towards this year's tax accounting.
The article, "Charitable Contributions and the Tax Benefits" as it comes from a faith based perspective, addresses the question of the true meaning of giving in the context of personal finances. Small business owners will benefit from reading this as it relates to the same issue of taking tax benefits for the business. Whether coming from a religious orientation or not, it is important for any business to asses the underlying values that relate to it's charitable giving program during the holidays and during the the rest of the year as well- and for tax advice about your giving plan, check with your tax advisor at tax time.

There is a tax advantage to giving. I often wonder if people would still give even if there was not a charitable contribution tax deduction? The potentially dangerous outcome is that we might be motivated to give just for the deduction.

December is the Most ‘Profitable’ Month For Non-Profits

December is the make it or break it month.

The primary reason for this that there are groups of donors who have a pocketful of money that they want to unload before the end of the current tax year – December 31st. Because of the financial advantage of giving, people give like crazy before the December 31st deadline. Depending on a person’s income they might even save money on taxes (if you are close to a bracket threshold) by making a contribution.

However, if you start thinking about tax considerations too early in the decision making process, you are likely to allow the tax impact to override doing what is best for God’s kingdom.

How do charitable contributions reduce your tax liability?

When you make a donation to a registered charitable organization you have the opportunity to also reduce your tax liability. Essentially each dollar you donate is not taxable.

Assume you made a $1,000 donation to you church and the church gives you a tax receipt at the end of the year. When you pay taxes you would not need to pay taxes on that $1,000 because it was given to a charity.

The more you donate the more taxes you save. Of course, you will want to consult with your tax advisor to confirm the details of your situation as it is fact dependent.

3 Excellent Tax Strategies That Are Bad For Charities

Keep your contributions for the entire year and then send the check in December.

The advantage is that you get to use that money, invest the money, and get interest on the money for almost twelve months. Then at the last minute you give it away (in December) so that you still get your tax deduction.

I think this strategy highlights a giving approach that is falsely motivated by tax considerations. Throughout the year, the charity also had uses for that money. Many charities are desperate for contributions and by getting a few extra pennies of your dollars you may be significantly hindering their ability to do good work.

Charity Reminder: It is better to put the needs of a charity above your ability to squeeze a few extra pennies out of your giving

Don’t make personal contributions to people because it is not tax deductible.

If you give $200 dollars to a family to buy groceries you cannot deduct that from your taxes.

The savvy tax advisor might suggest you make that contribution to a registered charity instead so you can get a donation receipt. The problem, once again, is that you are in the presence of a legitimate need (perhaps providentially arranged by God) and yet you dismiss that need because it is not a wise tax decision.

Charity Reminder: When you see a financial need, that need should supersede your desire to get a tax deduction.

Withhold your giving this year because it was a low income year and save it for next year when you will make more money.

Here again, the motivation to give is more about yourself than the charity. In fact, when you delay giving one year, it is quite possible that it might be hard for you to start giving again. It is important to weigh the spiritual impact of a decision – even if it has an apparent monetary benefit.

Charity Reminder: Giving is about blessing others and developing a healthy giving heart, it is not primarily about tax deductions.

Legitimate Charitable Giving Tax Considerations:

Giving is a blessing. Giving helps others. And, if on top of everything you can get a tax deduction, I think you should – it’s part of what’s involved in good stewardship. Since we seek tax efficient investing portfolios we should also seek to minimize a tax liability when giving. Ultimately, as you save on taxes you will in turn be in a position to give more in the future.

  • Depending on the car, you might be better off financially donating a car instead of selling the car.
  • Donate items that have appreciated significantly – stocks or real estate for example. This action saves you a lot of taxes and allows the charity to receive a larger contribution.
  • Charitable gift annuities
  • Request a charitable contribution receipt when you make a donation. To receive a receipt does not mean that the receipt motivated your giving. It simply is a wise action for a financial steward to be wise with every contribution.
  • Mileage tax deduction for volunteer work.
  • Setting up a charity in order to offer charitable contribution receipts to donors. You may need to adjust or structure your work in order to be able to legitimately receive charitable contributions. It would be wise to properly register your organization so you can offer contribution receipts.

4 Ways To Keep Giving Motives Pure

This post is not an encouragement to ignore tax considerations. It is, however, a reminder that at times our concern to do the most fiscally conservative action might hinder a legitimate giving opportunity. We want to be sure we keep the first things first and the last things last. The tax consideration should fall at the end of your giving decisions.

Step One: Consider the Biblical Teachings On Giving

There is a lot of discussion on the topic of the tithe and giving. Must I give 10%? Is 10% a starting place for giving? I’d encourage you to start with the topic of . Thought not biblically mandated I am a fan of the graduated tithe.

Step Two: Consider Your Internal Spiritual Need to Give

I think giving is a matter of the heart. Money and possessions have a sticky attribute – they try to cling and stick to you. The best way to rid yourself from a lust of stuff is to give it away. Giving produces healthy spiritual fruit.

Step Three: Consider the needs/the work of a charity

Once you have decided that you need to give as a spiritual discipline then you need to decide where you should give your money. Of course, the church is a great place to start with your giving. You might also want to consider organizations that are directly involved in things you are passionate about.

Step Four: Consider the Related Tax Consequences

The tax consideration should always come last. You know you need to give. You know when and how you should give. I believe it is only at this point you should start to think about how to minimize your tax liability though some giving strategies.


Would you still give even if there was not a charitable contribution tax deduction? When it comes to giving, do the ends justify the means? How do you know when tax considerations are taking priority over spiritual needs?

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