Although tax reform has previously been antonymous with simplification, the Tax Cuts and Jobs Act of 2018 did actually simplify things. The simplifications came in the form of limiting or eliminating certain deductions and increasing the standard deduction; however, these changes did make it more difficult to itemize. How does this impact a company or a corporation looking to partake in philanthropic endeavors? The good news is there were no major changes via the new tax law for charitable contributions; however, some of the limitation adjustments have made donors develop a more informed giving process. In this post, we discuss the benefits and various strategies organizations can leverage when engaging charities and non-profit organizations.
The first thing to consider when diving into charitable endeavors involves choosing a cause that aligns with or complements your company’s purpose and mission and that resonates with your employees, consumers, and followers. Charitable giving not only shows that your organization cares about giving back to the community, but also allows your company to reap potential tax benefits. Although the degree of the financial benefit varies based on the size of your corporation, there are countless benefits any size company can reap from philanthropic involvement. An important item to note is that in order for your donation to qualify for a tax deduction, your charity of choice needs to be a registered 501(c)(3) organization, meaning the association allows for a federal tax exemption. The IRS has an easy-to-use search tool that can help you quickly confirm if you are able to receive a tax deduction from your donations.
A tool that many companies and individuals use when making charitable donations is a donor-advised fund (DAF). A DAF enables an entity to make an upfront charitable contribution that qualifies for the annual benchmark for tax deductions. The money can then remain in the fund, allowing your company to distribute donations over time. Additionally, although charitable donations via check or cash are the most common, donating stocks or appreciated securities can also have attractive tax benefits due to changes in the rules for itemized deductions in the new tax law. To put it simply, a donation of appreciated securities and the deduction your company can receive exceed the monetary values of selling the shares and donating the cash proceeds because by donating the shares, you avoid paying tax on the capital gains.
Although most entities limit charitable giving to the end of the year, remember that there are many ways for your organization to give back outside of November and December. Aside from simply cutting a check during the year-end calendar months, a few creative ways to get philanthropically involved year-round include volunteering in your community, sponsoring a local charity race or event, or inviting a local charity’s founders to speak at a company event. Charity involvement is a two-way street – all of these actions can create welcomed transparency for both the charity and your enterprise. Don’t hesitate to ask organizations about ways your philanthropic support can be publicized, such as through a donor newsletter or giving campaign.
On a final note, remember to monitor the organizations you support to ensure your donated funds are used in ways that make your corporation proud in its involvement. Although making charitable contributions requires an investment in time and effort in addition to your company’s daily happenings, leveraging this goodwill and community involvement can be an invaluable way for you to connect with your employees and consumers.
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