Season of Giving charitable contributionsAs this holiday season rapidly approaches, you might want to get your charitable efforts well underway before your schedule spins out of control … again … like it does every year.

So right now, before bad weather sets in and everybody heads south for the season, it’s the perfect time to catch local businesspeople and ask for donations of cash or products for your next raffle or drawing. With Thanksgiving still a couple of weeks away, you’ll be able to find most business owners in their offices. Many of them will be feeling warm, charitable thoughts (and it’s not just because they haven’t yet opened their credit card statements or suffered through the 300th rendition of “I want a hippopotamus for Christmas”.)

At year’s end, many businesses might have unsold inventory they need to clear out to make space for next year’s products. And, let’s not overlook the fact that many of these businesses can be greatly benefited by squeezing in a bit of last-minute tax deductions! Many businesses have their fiscal year’s-end coming up and every little bit makes a difference.

There are a few rules your business friends should be aware of before they start packing your arms full of unsold inventory. I recommend reading a recent article by About.com’s contributor William Perez called ” Tax Deduction for Charity Donations Contributions to churches and non-profits are tax-deductible.”

Perez points out that a gift of cash or property must meet certain criteria in order to be tax-deductible.

Businesses must actually donate cash or property. A pledge or promise to donate is not deductible until they actually pay.

They must contribute to a qualified tax-exempt organization.A qualified charity will be able to provide the business with the proper documentation to prove their 501(c)(3) tax-exempt status. Not all organizations, such as churches and religious organizations are required to obtain 501(c)(3) status from the IRS.

Proper records must be kept. This includes saving canceled checks, acknowledgment letters from the charity, and appraisals for donated property. Contributions of property (other than cash) are also subject to strict record keeping and substantiation rules. The business must be able to substantiate the fair market value of the goods or property donated, plus keep any written acknowledgments you receive from the charity.

There are limitations on the deduction that can be applied. A charitable contribution’s tax deduction may be limited. There are limits specific to charitable contributions, and there are general limits on itemized deductions. A properly certified accountant is the best source for this information.

Not all contributions are tax deductible. Contributions are not tax deductible if given to any of the following:

  • Political parties, political campaigns, or political action committees.
  • Contributions given to individual people.
  • Fees or dues paid to professional associations.
  • Contributions to labor unions, chambers of commerce, or business associations.
  • Contributions to for-profit schools and hospitals.
  • Contributions to foreign governments.
  • Fines or penalties paid to local or state governments.
  • The value of your time for services rendered to a non-profit.

Charities should be ready to provide documentation to businesses regarding their donations in a timely manner. This includes both cash and non-cash contributions. No tax deduction will be allowed if the taxpayer cannot provide any supporting documentation –  and that might make the business owner less likely to contribute next year.

IRS Resources:

Lucinda Rowlands
Lucinda Rowlands

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