Boost business deductions with a charitable-gift program — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Boost business deductions with a charitable-gift program

by on
in Small Business Tax,Small Business Tax Deduction Strategies

You probably contribute your fair share to charity. In fact, you might make some last-minute donations to boost your charitable deductions for 2006 (see page 4). But is your small company doing anything to help those less fortunate?

Strategy: Set up a charitable “matching” program for your business. This is the same concept the corporate giants use: For every dollar an employee contributes — up to a specified limit — your company matches it in whole or in part.

This is a win/win strategy: Employees can deduct their contributions on their personal returns; your company can deduct its matching donations (limited to 10 percent of its taxable income for the year if the business is a C corporation); and the funds help people in need.

Here’s how it works: You establish the gift-giving program through regular payroll deductions. The company generally agrees to match the designated contribution on a dollar-for-dollar basis up to a specified annual limit or on a percentage of the contributions. Example: Say you set up a one-to-one match with a $1,000 limit. If an employee arranges to contribute $750 for the year, your company matches the entire amount. However, if the employee contributes $1,250, your company kicks in the maximum $1,000.

Typically, you should work with well-known charities that are likely to appeal to a wide range of employees. Some charities, such as United Way and the American Cancer Society, actively encourage matching programs. They can help you with the paperwork required to start the program. In addition, the charities can provide brochures and other materials designed to attract participants.

Another benefit: Under the new Pension Protection Act of 2006, substantiating charitable donations has become even tougher, beginning in 2007. Essentially, individuals must obtain a credit card statement, canceled check or written acknowledgment from the charity for all cash or cash-equivalent donations, not just those of $250 or more.

But, with the matching program, the acknowledgments are automatic.

Of course, your company can deduct other contributions to charity, not just matching contributions. In fact, you can take advantage of several charitable tax breaks in the new pension law.

Tip: Don’t forget about the 10 percent deduction limit for C corporations. You can carry over any excess for only five years.

Computer donations: Prior to 2006, C corps could receive enhanced tax deductions for donating computers and peripheral equipment to elementary and secondary schools. The deduction equaled the property’s basis plus half the difference between the basis and its fair-market value.

Congress has extended this tax break as part of the Tax Relief and Health Care Act of 2006.

Leave a Comment