Company Tax Breaks for Nonprofit Donations

December 13, 2021

Small and large businesses alike can greatly benefit from giving to the causes they most support. A gift matching or donation fundraiser is a smart marketing move, and it’s a strategic way to align employees and customers with your brand’s primary mission. The best way to conduct a gift-matching campaign or donation fundraiser is to make sure all collected funds are donated to a non-profit cause/entity. Keep reading to learn how small and large businesses benefit from tax breaks from making donations to non-profits.

Saving Money on Taxes With a Donation

Currently, the corporate tax rates are at 21%. This means if you can make a $10,000 charitable donation to a non-profit, you will save yourself $2,100 on business taxes. There are several federal rules that you must follow to qualify for a tax break on a charitable contribution, with the key here being to donate to a non-profit entity. 

C Corporations

It’s important to understand that as a C corporation, you can write off up to 10% of your business income by donating to nonprofits. There are some exceptions to this tax law. For example, the IRS currently advises that C corps can write off up to 25% of business income under charitable contribution donations as long as the donations were made as cash contributions and to a qualifying organization during the 2020 calendar year. 

Sole Proprietors 

If you’re a sole proprietor or part of a partnership, you can’t take advantage of the donation tax law. Why? Because you file your taxes in a manner that recognizes your earned income as personal income, and therefore, any donations you make are considered a personal contribution. This is why a lot of sole proprietors and partners decide to incorporate their brands into C corporations. 

It’s also pertinent to understand how property donations are evaluated under the charitable contribution donation tax law. Generally, the fair market value of the property is what suffices as a base on which to judge the donation’s value. This is why a lot of corporations decide to donate unwanted assets. Take for example your corporation bought a work truck 10 years ago for $22,000. Its current market value is $10,000, meaning you can donate it and reduce your taxable income by $10,000. Unless you think you can sell the truck for more than $10,000, it’s wise to consider whether your brand could benefit from a sizable tax break and if so, making it smarter to donate the truck rather than going through the hassle of selling it. 

Things to Remember When Making Your Donations

  • Don’t mark the donation to a specific individual (if you do, it won’t qualify under the charitable contribution donation tax law)
  • Don’t make it so that you’re donating to receive a benefit of any type (e.g.. donations to a raffle don’t qualify because you could win a prize in return)
  • You can’t create a donation based on time and services provided
  • Your meal and entertainment expenses don’t qualify

Final Thoughts

Want to learn more about the many reasons corporations just like yours give to nonprofits? Check out these five things to know about gift matching and making charitable donations.