12/ 15/ 2004
by Jeffrey Moses
Now that the holiday season is upon us, many small-business owners across the country are considering donating to local or national non-profit organizations. The following pointers can help make sure that your donations accomplish what you want them to—and that your company will receive the tax deduction you're expecting.
1. Since your donation will, in effect, represent all of your employees, be sure that the charitable organizations of your choice are not offensive to some members of your staff. Select several potential charities and at a company-wide meeting give employees the chance to voice their opinions. Smaller donations, such as $15-$20 here and there to local non-profit organizations, usually are not questioned by employees.
2. Remember that "non-profit" doesn't always translate to "tax-deductible." Check with the organization to make sure that your donation can be deducted for tax purposes. The IRS has precise definitions of what does and what does not constitute a charitable organization (usually referred to as a 501(c) charity). For more information, consult with your tax adviser.
3. Check out the charitable organization carefully if you have not heard of it before. Don't be fooled by organizations that have names similar to well-known charities. When you have doubts, consult with your local Better Business Bureau or with your state's Attorney General's office.
4. When donating, always pay by check so that your records will be accurate for tax purposes.
5. Don't bend to pressure from charitable organizations to donate quickly or to donate a certain amount. If you or an employee receives undue pressure, inform the charity that you need time to consider your donation and to check out the organization.
6. It has become widely known over the last several years that in most cases only a percentage of money donated to a charity is actually used for the organization's stated purposes. Before donating, request financial statements from the charity that show a breakdown of how each dollar is used. If too high a percentage is used for operational costs or fund raising, rather than for charitable purposes, consider donating to another charity.
The Council of Better Business Bureaus has established guidelines for the percentage of operational expenses for a charity that should be considered 'adequate' or 'normal.' These standards recommend that 50 percent or more of the charity's income from donations be used for the programs stated, and that no more than 35 percent be spent on fund raising. These are not hard and fast rules, of course, but they can help you determine if a charity is truly attempting to do what it proclaims to do.
7. Before making a donation of significant size to any charity, consult with your tax adviser to make sure that all of the money you donate will be tax deductible. Often, only a percentage of your donation will be allowed. This is especially true when your donation is in the form of a purchase. For instance, when you purchase items such as candy, toys or other items or when you buy tickets for a show, you may be able to deduct only the amount above what the IRS would consider the fair-market value of the items.
