Charitable Contributions or Business Expenses

Making charitable contributions as a small business owner has always been an area with some risk. Is it better to make the contribution as a business or as a personal expense? How do you deduct a charitable contribution? Should I even make a charitable contribution to help lower my taxes?

With the recent passage of the Tax Cut and Jobs Act, most of us won’t be itemizing our personal deductions. Making a charitable deduction that can be deducted as business expense is even more important than before the legislation. The key thing to remember that businesses can’t deduct charitable contributions unless they are a corporation. They can certainly make them. But the deduction must be taken on Schedule A of the owner’s personal return.

“But wait,” you say, “I see small businesses making donations and sponsoring events all the time.” This is true. But in order to be deductible, the payment has to be acceptable as an ordinary business expense to the company. If your business gets some in return for its donation, such as advertising or some other promotional opportunity, then it’s a deductible business expense. Absent such a quid pro quo, the expense is a contribution and can only be deducted on Schedule A of the owner’s personal return. With the higher standard deduction, most individual taxpayers will no longer be itemizing. So, it’s critical to make sure you understand and document the terms of the exchange when you make a payment to a nonprofit organization or other community entity.

Not sure how your payments should be deducted? Feel free to send your question to us at jamesyoung@jyefinancialsolutions.com.

James | 10/28/2019

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Charitable Contributions or Business Expenses