Giving to charities and other non-profit organizations is a good way for your small business to build goodwill within the community and is often part of an overall public relations strategy. For businesses, making charitable donations in cash, property and time can be a benefit when it comes time to file your business taxes. Many contribution types are tax-deductible. However, there are limitations on these contributions and processes to follow in order to comply with tax laws.

Qualifying Donations

The Internal Revenue Service recognizes both cash and noncash contributions from businesses. Noncash donations can be property, goods and inventory. You also can deduct expenses related to volunteering for a qualifying charitable event or service project. This does not include the value of the time you spent but covers gas and mileage required to attend an event, along with any supplies donated to the cause. Often, charitable donations are made in exchange for something of value. In this case, only the amount of the donation above the value of the good or service received is tax-deductible.

Qualifying Organizations

In order to utilize the charitable donation deduction, your business must give to organizations recognized by the IRS as 501(c)(3) nonprofit organizations. This distinction enables these organizations to receive tax-exempt donations. Gifts and donations to political organizations, parties or candidates, or to specific individuals, are not recognized by the IRS as tax-deductible donations. You can determine if a company qualifies by asking to see its letter from the IRS naming it a tax-exempt organization. You also can search for qualifying organizations by using the IRS Exempt Organizations Select Check tool.

Limitations

While individuals donating to qualifying 501(c)(3) organizations are allowed to deduct up to 50 percent of their adjusted gross income as charitable contributions, businesses are limited to 10 percent of their taxable income. Many businesses opt to donate the maximum amount allowed each year.

Record Keeping

Record retention and bookkeeping is important for businesses that wish to deduct charitable contributions. You must keep the proper paperwork and receipts of your transactions. If your business makes a donation of less than $250, a receipt written out by the accepting charity suffices, as does a canceled check or credit card or bank record. For cash donations above $250, you’ll need an official receipt from the organization. For cash donations, there is no additional IRS form to fill out.

For noncash donations, you need a receipt from an IRS-recognized charity, but this receipt likely does not include a cash value. To deduct the donation, you must appraise the fair-market value of the items yourself and use that amount as your deduction. If the value is greater than $500, you must fill out IRS Form 8283 when you file your taxes. If your donation is worth more than $5,000, you also must obtain a written appraisal of the goods and have the appraiser sign Section B of Form 8283.