Ask the Expert

The holiday season is upon us, and my business traditionally gives to several charitable causes. We do this because our company cares about the community, but what should I be considering in maximizing the tax advantages we receive from our charitable giving?

Charitable giving is any donation or contribution individuals or companies make to nonprofit organizations. The intention must be altruistic in nature, meaning free from expectation of receiving a monetary benefit. Donations may be in the form of cash — cash, check or corporate stock — or non cash — equipment, products, services or labor.

Generally, three groups encourage charitable gifting programs. First are the individuals and/or business entities that want to do some good. Often that group also includes business owners, who supplement their own gifting programs by matching the amount given by employees. The second group to encourage giving are business advisors, such accountants and attorneys, who recommend gifting programs to achieve estate and tax planning objectives. The third group to initiate gifting programs is the charities themselves, who will often contact companies with requests for programs or special needs.

Charitable giving considerations
When developing a corporate giving program, it is important to identify your own company’s goals to determine how to maximize the corporate benefits you will get from your contribution. A charitable program is an investment in your community that can produce returns for your company. A well-conceived plan can provide efficiency and cost savings to the donating company, in addition to presenting the company as having a sense of community. It is important to know the fine points of donating to maximize both the benefits to the giving company and the receiving organizations.

As is the case with many aspects of business, however, charitable giving is not without complications. For example, consider these basic facts when establishing a gifting program:

• Generally, the value of a noncash contribution is the lesser of the cost basis or fair market value of property contributed. However, the extent of deductibility of a corporate charitable contribution is dependent on the type of corporate entity. For example, C corporations and S corporations have different limitations on the deduction for charitable contributions.
• Labor or services provided to a charity or nonprofit organization are not tax-deductible. While there is certainly a "community" benefit to this type of giving, there is no tax advantage.
• Businesses can earn a tax write-off while also reducing their taxes by ridding themselves of unwanted inventory by contributing it to a nonprofit organization. However, the receiving organization must have use for the items. Items donated that must be sold or otherwise disposed of by the receiving organization can result in a reduced benefit to that organization. Limits exist on the type of property donated. Adjusted Gross Income (AGI) limitations on deductions are up to 50 percent on cash contributions and up to 30 percent on noncash items of an individual’s taxable income. The deduction of a corporation’s charitable deductions is limited to 10 percent of its taxable income. Typically, individuals donate more noncash household goods, while corporations more frequently give cash because of AGI guidelines.
• Deductions for stocks can be taken for the fair market value of the shares, and the donor also avoids the tax on the appreciated value when the gift is made. Closely held company stock is sometimes more complicated to value than publicly held stock requires a costly valuation procedure. (That’s one reason why closely held company stocks are better suited for estate and succession planning.)

Misconceptions about charitable giving
Unfortunate as it may be, many people tend to think about donating only after tragedies occur or around the holidays. Instead, the establishment of an overall plan and giving strategy provides corporate and community benefits year-round, and allows the donating company to time the distribution without the pressure of deadlines.

One misconception around giving stems from the belief that all donations are created equal. Nothing could be further from the truth. To maximize the charitable deduction, the donation company must consider the timing of the gift, the type of gift and the organization receiving the gift in addition to tax laws. For example, the deduction for a vehicle donation is limited to the vehicle’s true value, which is often less than the "Blue Book" value. For these reasons, it is extremely important to consult tax and financial experts when establishing a charitable giving program.

Corporate citizenship
With the holidays approaching and the recent devastation attributed to hurricane season, charitable giving is on the minds of many. Donating gifts of cash, property or services to organizations provides mutual benefits by providing basic necessities to those in need, at the same time donating companies and individuals receive the experience of doing good. In addition to helping the company’s "bottom line," a wellplanned charitable program displays the fact that your company is one that cares about its community.

Jonathan Howard, CPA, MST, is the tax manager for International Tax Advisors, Inc., a tax consulting firm and related company of International Profit Associates, Inc. For information on IPA, visit www.ipa-iba.com.