Charitable Contributions

Tax Deductible Charitable Contributions

Another chapter in our Self-Employed Tax Guide.

As a Self-Employed Small Business owner, this is one of the best marketing tools out there as well as a great tax deduction if prepared and carried out correctly. What better way to get your small business’s services and products in the front of the mind of a large audience and gain the tax rewards as well. It could sound too easy to be real! Let’s look properly at the various ways these contributions can reward your business.

Goods and servicesThe value of your contributions is as a general rule at FMV, or Fair Market Value, and ought to be significant in such. One such illustration of this would be a donation of product to a Good Will Store with a value of above $250. Your organization possesses some un-sellable shirts in storage that you might have purchased in bulk, but which can’t be gotten rid of via sales and time has passed where the articles may no longer have a market value as regards fashion trends. These products can be offered up as a charitable donation to a Good Will Store, or other such store or used by an Outreach service for people who are in need of articles of clothing in order to progress in their lives. Upon transfer of this charitable contribution the outreach service is going to give a donation receipt to validate the acceptance of the merchandise. This receipt would be fixed to the bill of goods to validate the purchase, and also the accounting transaction which reduces your inventory and records the charitable donation.

Another example would be for services that you provide to the public. This approach is an excellent way to perform community service plus receive a tax deduction as well. The United Way and organization like this often have events where needy and indigent people gather to receive, en masse, services which they can’t afford or for which they don’t access to. Your service would be counted as a charitable contribution at fair market value and the organization would give you a receipt declaring the value associated with these services for taxation purposes. For your purposes, this receipt as well as any of the supplies used can be considered deductions. Please make note these events pull such a big gathering of individuals that via word-of-mouth and direct-exposure marketing your business might be seen by quite a few persons. Donating scrap materials from finished goods product is another such example. This could be unused food items. The fair market value rules again apply. To assess the FMV, consider at what price an item may fetch in a yard sale.

Cash Contributions

In compliance with Irs regs, a receipt is required for any single donation exceeding $250 so as to claim the deduction. This variety of contribution is the most common and is easy to maintain. One employed method is planned giving. This can be established monthly, quarterly, or annually depending upon your preference. As a small business owner, this is a ideal way to plan your annual charitable deduction and maintain your cash reserves, arriving a expected results. Remember to confer your accountant for rules on the Schedule C form. Your business can extend its marketing reach, benefit the community, and obtain a tax break in one single move. Additional information can be located in Publication 526 and guidelines for disclosure in Publication 1771. Or just go see your certified public accountant.

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.