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Bookkeeping Tips for Small Business Charitable Donations

You’ve got your bookkeeping down to a science when it comes to accounting for your regular small business activities. But how about accounting for small business charitable donations?

If your small business makes charitable donations, you need to know how to record the donation and whether or not you can deduct the gift. Here are some things to keep in mind as you consider donating to charity.

What is charitable giving?

According to the IRS, a charitable donation is a gift made to a qualified organization. Qualified organizations are discussed in the next section. A charitable donation is made without any expectation of getting anything of equal value in return.

Whom can you give to?

As mentioned above, a charitable donation is given to a qualified organization.

Qualified organizations are often 501(c)(3) status organizations. Some types of qualified organizations include war veterans’ organizations, volunteer fire companies, churches, museums, and nonprofit hospitals. Check out Publication 526 for more types of qualified organizations.

The IRS also has a search tool to help you find eligible organizations.

What can you give?

You can simply write a check and mail it to your favorite cause. Or, you can get creative with your donations. Some gifts can qualify as tax deductions toward your business’s annual tax liability. However, not all contributions are deductible.

Graphic: What can businesses donate?

Money

Donating money to an organization lets them use it as they see fit. Sometimes an organization can stretch your dollars by purchasing needed items at a deep discount. For example, food banks often state how many meals they can provide for five dollars. Cash gifts are also good options when you don’t have the right goods or services to give an organization.

Cash and other monetary deductions are deductible as long as they are not set aside for a specific person. For example, you can deduct a monetary gift given to an organization that provides clothing to people in need. But, you cannot deduct money given to a specific person to buy clothing.

Property

Many things can be donated for use by a nonprofit. And, you can donate items a nonprofit can sell to earn more money.

You can only deduct the fair market value of the items you donated. To determine the fair market value of an item, check out Publication 561.

Time

You can donate your time and services through volunteering. When you do this, you cannot deduct the value of your service. For example, if you own a landscaping business and you donate landscaping services to a local charity, you cannot deduct the amount you would normally charge a customer for your services.

You might be able to deduct certain expenses related to donating time. For example, you might be able to deduct supplies that you give out.

Bookkeeping tips for small business charitable donations

All businesses that make charitable donations should keep detailed records. You should record whom you donated to, what you donated, the value of what you donated, and when you donated.

Keep these records handy for when you file your business taxes. And, you should keep these documents around for several years, just in case you face an IRS audit in the future.

When you make a charitable contribution, you are spending money or moving inventory. Record your donations in your accounting books.

How you report and deduct charitable contributions depends on your business structure.

If you are a sole proprietor, you can list the donation as an itemized deduction on your Schedule A of Form 1040.

If your business is an S Corp or a partnership, you will record the donation on Schedule K-1.

If you own a corporation, you will report the donation and deduction on Form 1120.

An easy way to track your charitable contributions is with Patriot’s business accounting software. You can check it out with a free trial.

This article is updated from its original publication date of 12/11/2015.

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