6 Smart Ways to Tap Into Corporate Giving This Season
Corporate Social Responsibility (CSR) is an intentional business and management strategy that companies use to become more conscious about the impact they are having in all aspects of society including economic, environmental, and social. Companies use CSR initiatives, also known as corporate citizenship, to generate greater social accountability for themselves, their employees, their stakeholders or investors and the public. When practicing CSR, self-aware companies set themselves specific societal goals and intentionally look for ways to meet them with philanthropic, active, and supporting practices and initiatives.
One of the easiest ways your company can work to meet some of the societal goals you may have set as part of your corporate citizenship this holiday seasons is with corporate charitable giving. Charitable giving not only gives your company an opportunity to benefit fiscally from the tax deductibility of many forms of donation, but it also gives you and your employees an opportunity to participate in the spreading of joy and goodwill in a year where both have been hard to come by for so many parts of our society.
While charitable giving can be an advantageous tax strategy, there are some aspects of giving to be mindful of to ensure your donation has the maximum impact in 2021.
Donation of Appreciated Non-Cash Assets Instead of Cash
Donating appreciated non-cash assets that you have held for more than one year can be one of the most powerful tax-smart strategies. Appreciated non-cash assets may include publicly traded stocks, privately held business interests, real estate, fine art and collectibles, and cryptocurrency. There are two major benefits of donating non-cash assets: 1) you can claim fair market value as an itemized deduction or business expense for the appreciated asset, and 2) you can potentially eliminate capital gains tax you may otherwise incur from selling the asset.
Establishing Donor Advised Funds
If charitable giving is part of your ongoing or long-term CSR agenda, you may consider establishing a Donor Advised Fund (DAF). A DAF is a giving account you set up with an established DAF trust (there are many public agencies that sponsor DAF’s; check with your financial advisor for DAF’s they recommend and may have worked with in the past) where you can donate money and receive an immediate tax deduction in the year the money is transferred. You then establish a mechanism for that fund to give grants or donations to other charitable organizations per a set of guidelines you may establish upfront or requests you may make as time goes on. It is a way to offset funds and receive the tax deduction now while taking time to establish the specific philanthropic intentions for that money later.
Donation of Used Company Vehicles
If your company operates a fleet of vehicles you may like to consider donating vehicles ready to roll out of the fleet. The amount you can deduct for this donation will depend on what the charity does with the vehicle. If they sell it, the value of your donation is limited to the proceeds they received from the sale. If the charity intends to use the vehicle themselves or donate it in furtherance of their charitable purpose, you may be able to deduct an amount closer to the fair market value of the vehicle at the time it was donated. In all cases of a donated vehicle, you need to ensure you receive written acknowledgement from the charity regarding your donation.
The acknowledgment will need to include your company name and tax ID, the vehicle identification number, the date of the donation, and a statement regarding what the charity intends to do with the vehicle as well as details regarding the good faith estimate for the donation. Where you intend to claim a fair market value for the donation, it would be best to include valuation details from an independent third party such as a property adjuster or Kelly Blue Book. For more information and detailed IRS guidelines regarding the donation of a vehicle to charity check out the IRS publication A Donor’s Guide to Vehicle Donation.
VTO - Volunteer Time Off
As CSR initiatives work to include more of a company’s employees actively in the achievement of social goals, VTO is becoming more and more popular. VTO is when your company provides paid time off for employees to volunteer at their favorite charity. The first question many businesses ask about their VTO initiatives is, are there any tax benefits of paying staff for time spent volunteering at charities? The answer is no – there are no direct tax deductions tied to the fiscal components of VTO – you cannot convert the payroll dollars paid to employees volunteering at charities into a tax deduction. You will incur payroll taxes on that paid time.
However, extensive studies have shown that philanthropic strategies such as VTO can lead to greater employee engagement, lower employee turnover, increased productivity and expanded corporate visibility – all of which will contribute to your bottom line.
Donation of Professional Services
Some professional services organizations may be wondering if they can claim a tax deduction for donated services for which no payment is received. The answer is no……well…. sort of. When it comes to pro bono work, the IRS says you cannot deduct the value of the services given to a qualified organization, but you can deduct the value of direct costs you incur as a result of providing those services such as travel, uniforms, or the cost of materials or products like software that you purchased to facilitate the fulfillment of the work. When it comes to a deduction for miles travelled to the donation location, remember the IRS standard mileage rate for driving for charitable purposes in 2021 is limited to $0.14 per mile, not the $0.56 offered for business related travel.
Donation of Inventory
In contrast to the IRS guidelines regarding donation of professional services, your company is allowed a tax deduction for charitable contributions of inventory (besides cash). The inventory can be virtually any property a business owns, other than money, and may include tangible goods but also intangible assets like patents, copyrights or trademarks that are considered to have value. Generally, the value of the donation will be the lesser of the cost or the fair market value of the inventory being given.
A few extra tips to maximize your impact.
There are SO MANY ways in which your organization can participate in charitable giving, these are just a few. But whatever your organization decides, I will leave you with a few tips to help you maximize the impact of charitable giving for your company this season.
- For 2021 the IRS limits the value of charitable contributions by C corporations to 25% of taxable income.
- Make sure your charity is a qualified organization. Unfortunately, charity scams do exist and to maximize the tax advantages of a business donation, you need to ensure the organization you are giving to is a registered charitable organization. Peruse the organization’s website, gather their address, and tax ID number, check to see if they have prior year 990 tax returns posted online. If you have any concerns, you can use the IRS’s Exempt Organizations Select Check tool to search for the organization and ensure it is legally registered.
- Charitable giving can have a compelling impact on the culture of your organization. Consider ways your donation could have a bigger impact with your employee base. Ask your employees for recommendations of charitable organizations or events that have special meaning to them, create a forum for employees to “sell” their recommendation to their colleagues and provide a mechanism for employees to vote on the charity or charities that resonate with them.
- In all cases of charitable giving, be sure to gather documentation regarding your donation such as a letter from the receiving organization stating their name, address and tax ID. Make sure the letter provides details of any non-cash items you donated and states the value of the donation.
- When making monetary donations, pay with a check or credit card so you have a record of the donation and to provide protection in the case of a charity scam.
As always, it is a good idea to check with your company tax and financial advisor before making any charitable donation to ensure both you and the organization you are donating to can realize the maximum impact possible from your generosity.