Small Businesses, Charitable Contributions, and the IRS

No one really likes to think about paying taxes, but everyone likes to think about tax deductions. And for you small business owners who want to give back, but still need to mind your budget, my friend, Deb Meyer, has some great advice for you.

As you know, I’m a big fan of small businesses partnering with nonprofits and the for-profit social enterprise model. Each is a terrific way to make money and do good. So, if you fall into one of those two categories, Deb will give you the low-down on what charitable contributions look like for businesses, including examples to make it clear.

And for the nonprofits reading this post, she’ll also give you some tips for working with donors to keep them happy and informed.

Tax time doesn’t have to be your favorite time, but this will certainly make it easier. And if you can get a little reward for being kind, why not?

As a CPA financial planner, I’m well-versed in charitable giving strategies for individuals. If you give personally to a charitable cause and itemize deductions, there’s an added benefit of your generosity: a tax deduction! 

But what if you’re a social enterprise or small business owner who wants to use the business to give back? The rules aren’t quite as straightforward as they are for individuals. Even nonprofits can benefit from learning these rules and share them with potential donors.

Definition of Business Expense

From a tax standpoint, your business expense must be ordinary and necessary. Ordinary means the expense is common and widely accepted in your business. On a related note, a necessary expense is one that is helpful and appropriate for your business.

Let’s dive further into IRS Publication 535 for guidance on whether charitable contributions are deductible business expenses. Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments aren’t charitable contributions or gifts and are directly related to your business. It is a bit counterintuitive, don’t you agree?

As an individual, you make a charitable contribution out of the kindness of your heart and may receive an additional tax benefit as a bonus. Within a corporate environment, generosity is not the name of the game.  Rather, there should be a business motive behind the transaction.

3 Examples of Deductible Business Expenses

EXAMPLE #1:

Your roofing business wants to run an advertisement in your church’s bulletin and the cost is $1,000 for the year. You pursue the ad because your business is looking to grow its customer base. The business is eligible for a $1,000 tax deduction, just like any other marketing expense.

EXAMPLE #2:

One of your clients runs an annual golf tournament to honor the life of her deceased son. You, a small business owner, are invited to attend the golf tournament. You buy a single ticket to play in a foursome. Is your ticket cost tax deductible on the business return?

Probably not, unless you can provide a reason for the business purpose behind the event. 

Rather, take your “business” hat off for a moment and see if this qualifies for a personal charitable contribution. Look at the value received from your ticket. The tax-deductible amount is the portion in excess of the value received (i.e. if the ticket cost is $80 and value received is $50, you could claim $30 of charitable contribution on Schedule A of your personal tax return).

The better option in this scenario? Your company could sponsor a hole or provide an item for the silent auction. That cost is fully tax deductible for the business because sponsorship is a marketing tool. 

EXAMPLE #3:

Your brick-and-mortar store is suffering due to lack of foot traffic. The local Chamber of Commerce unleashes a solid plan to increase the number of visitors within a one-mile radius of your business. Your business gives $5,000 to support this excellent initiative. There is a marketing purpose behind this expense, so it is considered tax deductible.

Commonalities Among Deductible Business Expenses

In each of the examples above, there is a common thread for the small business owner to claim a tax deduction: advertising. For-profit businesses are in business to make money.

Advertising or marketing expenses are deductible because they increase brand awareness. Sales increase as more people learn of your business service or product. 

Just because you own a for-profit business does not mean you need to leave your philanthropic heart at the door. In fact, profitable small business owners can give at even greater levels than traditional employees. Your business has unlimited earnings potential! 

Additionally, as demonstrated in the second example, a charitable contribution with no business purpose may be tax-deductible personally. 

Claiming Personal Charitable Deductions

Unless your business is classified as a C Corporation, the underlying business profit eventually flows to your personal U.S. income tax return. Sole proprietors file Schedule C of the federal form 1040, while business partners in a partnership generate Schedule K-1s from their business tax return.

One of my clients runs a pizza franchise, and they periodically donate old inventory to a nonprofit organization. The business doesn’t receive any publicity from these donations, so we do not deduct the cost of donated inventory on the business tax return. Nonetheless, we take the value of the charitable contribution and report it on Schedule A of the business owner’s personal tax return.

How the TCJA Impacts Charitable Contributions

Sweeping U.S. tax reform, known as the Tax Cuts and Jobs Act, passed late in December 2017 and took effect for the 2018 tax year. This groundbreaking law welcomed a host of tax-related changes, most notably the increase of the standard deduction on personal tax returns to $12,000 for individuals and $24,000 for married couples filing jointly. 

Although actual figures are not yet in, the Joint Committee on Taxation estimates that only 12% of U.S. taxpayers will itemize deductions for the 2018 tax year.

This is especially concerning to nonprofits who rely on financial support from individuals and businesses alike. You no longer receive a personal tax break for charitable contributions if you take the standard deduction. While that won’t deter all families from giving, it may result in lower overall contributions.

Thus, BIGGER IS BETTER. There are smart ways for individuals to stack their charitable contributions in one tax year (to get the deduction) and then decrease their giving in the subsequent tax year.

Alternatively, donor advised funds are great tools for families who want to give substantially to one or more charities over several years and ensure they receive a tax deduction. Consult this article for additional strategies to maximize personal charitable contributions.

Action Items for Nonprofits

What is a nonprofit organization supposed to do with this information?

First and foremost, educate. 

Help current and potential donors understand the rules around charitable giving—both personally and within a for-profit business structure. Provide concrete examples for them, specifying when it may be OK to claim a tax deduction.

If you’d rather not provide examples for liability reasons, point donors to this article or to a qualified tax or financial professional. This professional should be carefully vetted in advance to provide deeper guidance on the nuances of charitable contributions.  

You Can Be Kind and Still Get a Tax Break

Knowledge is power. It pains me to tell a new client that his or her business charitable contribution does not qualify as a tax deduction. There are ways to give back and legitimately claim the tax break, but you must know the rules. 

Having read this article in its entirety, you now understand the basics. Now go and share them! 

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Deborah L. Meyer, CPA/PFS and CFP®, is a fee-only financial planner and the author of Redefining Family Wealth: A Parent’s Guide to Purposeful Living. Deborah is also the owner of WorthyNest®, an independent advisory firm dedicated to helping parents build wealth. She is a recipient of the 2018 AICPA Standing Ovation Award for Personal Financial Planning. Deborah has been featured in The Wall Street Journal, Forbes, Yahoo! Finance and CNN Business and is a regular contributor to Kiplinger. Outside of work, Deborah spends time with her husband, Bryan, and three sons.

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I’m Kristi Porter, and I help cause-focused organizations understand and execute effective marketing campaigns so they can move from stressed to strategic. Your resources may be limited, but your potential isn’t. Whether you’re a nonprofit, social enterprise, or small business who wants to give back, I’ll show you how to have a bigger impact.

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The Four Missing Pieces of Your Partner/Sponsor Presentation

Partnering with a small business—is it on your organization’s bucket list? It is for many small nonprofits and social enterprises. But it also seems a little elusive, doesn’t it?

First, you have to find the right potential partner. Then, you have to do a little wooing and a little schmoozing. After that, you might just secure your invitation to present your cause to the decision-makers.

It’s no small accomplishment making it this far! But finally, you’re in the room. So, what do you say?

Whether you’re seeking funding, in-kind-services, volunteers, or something else, there could be a lot riding on this meeting, both in the short and long-term. So, you certainly want it to go well.

If you’ve presented to a small business before, I’d urge you to dust off your presentation to look for the errors below. If this is your first time, consider it a head’s up.

Avoid these mistakes to have your potential partners and sponsors jumping at the chance to say, “YES!”

Missing Piece #1: Your Potential Partner

Is it possible that you’ve gone and made the whole presentation about you? That’s a common mistake.

Maybe you’re nervous, and all you can think of is you. Maybe you think you have something to prove. Maybe you want to adequately make your case. Maybe you’re just so darn excited about your organization that you can’t wait to share it.

All of those are perfectly normal, but while you’re fine-tuning your pitch, be sure to bring your potential partner or sponsor into the mix as well.

Don’t just let them see your mission. Let them see themselves in it.

Missing Piece #2: The Customization

Building on #1, I’d encourage you not to simply cut and paste your last presentation. Sure, many of the same elements will be included. But, where possible, tailor it to the people in the room. And I don’t just mean replacing the last guy’s logo with another one.

I always think it’s good to include both a mix of stats and stories. So, is there new research to support this potential partner or sponsor being involved? Is there a story that fits with the mission of the company? Is there something you’ve seen this business say or do that should be included?

Where can you edit a presentation to make it look like it was created for their eyes only? This kind of customization shows that you value them and their time. And it demonstrates that they are the perfect partner or sponsor for the need at hand.

Missing Piece #3: Your Confidence

Are you desperate for this help? Don’t show it! I know this can be very hard. I’ve been there myself—plenty of times.

But people don’t often give to desperation, unless it’s due to something like a natural disaster or tragedy. Otherwise, it can be a little scary for those at the opposite end of the table to realize all your hopes and dreams rest on them. Unless they have a savior complex, they may run in the other direction if you let them know that they are your Plan A, B, and Z.

If their decision is the make it or break it kind, it’s a lot of pressure to put on them. And, like individuals, companies want to give where they feel their money/services will be safe and best utilized.

So, what’s the alternative? Ask out of confidence. You undoubtedly have a lot to bring to the table, so put your best foot forward. Even if you really are desperate, make a list of the ways you benefit this company, what you do well, and the people you serve. I have no doubt it’s a great list, so let it inspire you as you make your “ask.”

Cause marketing (where for-profits team up with non-profits) is only growing, and that works in your favor. It’s possible this company has been waiting for someone like you!

Missing Piece #4: The Relationship

Listen closely, because this is the most important part. Unless you are just looking for a one-off favor or check, this is the part you can’t skip: the relationship.

The key piece of your presentation is the conversation that happens before and after the projector turns on and off. No amount of beautifully-designed slides will ever replace the dialogue between you and your potential partner or sponsor.

Don’t have designer on staff? This should be great news!

Take the time to cultivate this relationship for long-term success. Get to know the company and the people behind it. How can your mission enrich their efforts? They want to make an impact, too. It just might look different.

After the check’s in the mail, how can you continue to nurture the relationship for the future?

Not only is it easier to retain previous partners/sponsors rather than finding new ones, but building an engaged and dedicated partner could have significant, long-term effects for both of you.

I’m definitely an advocate of a good-looking presentation, but more than that, I’m an advocate of building relationships.

So, don’t leave these four pieces out of your next partnership or sponsorship presentation. They could just mean the difference between a yes and a no.

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Need a ready-to-edit presentation perfect for your next partner or sponsor meeting?

Bundle includes presentation template, talking points and content guide, customization tips, and a getting started video!

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I'm Kristi Porter, and I started Signify to provide writing and consulting services to nonprofits and for-profit organizations with a social mission, primarily through copywriting, marketing, and business communications. I also teach solopreneurs and small businesses how to incorporate philanthropy and giving strategies. I believe that cause-focused organizations are the future of business. You're proof that companies can both make money and do good. And I'm here to help you get noticed and grow. When you succeed, we all win.

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How to Give Back With Your Small Business

Over the summer, I had the desire to be more charitable with Signify. It’s generally a slower season, and that gave me a little more capacity to think about how I wanted to utilize my business to give back to the “do good” community at large.

You might look at a small business like mine think that philanthropy is very easy for me, given that my service offerings and products are primarily built for cause-focused organizations. And in some ways, that’s true. But I’m also a solopreneur still in the early stages of my business. So, it’s not like I can take off every week to volunteer or send out large checks on a regular basis.

If you’re a fellow startup, entrepreneur, or small business, you probably understand the dilemma.

Still, I knew there were ways to capitalize on the summer months if I was creative. I wanted to give more than the occasional volunteer hours or one-off check here and there. And I knew that the fall would be incredibly busy, so this was going to be a short-term effort.

So, I looked around at what I had to give and who I wanted to serve, and formulated a plan.

The Good News About Charitable Giving For Small Businesses

In my current work at Signify, as well as my many years of volunteering for and working in nonprofits, I’ve learned a lot of things. But one of the chief take-aways is that small organizations can use anything you have to give.

That is fantastic news for solopreneurs and small businesses who want to be more charitable. Only have a little to give? No problem!

Whether it’s a few volunteer hours, small donations (regular or now and again), or some other in-kind service, it will be put to good use by those with limited resources. Plus, you’ll get to participate in the causes that you care about! And, if that wasn’t enough, you’ll get to build personal relationships with the people solving problems that matter to you.

This Solopreneur’s Solution

As I mentioned, I formulated a workable plan for my summer giving. I decided that dishing out free marketing advice was the best thing I could offer. After all, standing in the gap for nonprofits and social enterprises who don’t have a marketing department was the reason I created Signify in the first place. So, my time and expertise was the most valuable commodity I had to give.

I held what I called “office hours,” which were set consultation hours during the week that any purpose-driven organization (for- or non-profit) could sign up for. There was no cost and no pitch for working with me afterward. It was just a chance to get their marketing and communications questions answered, or get feedback on their current efforts.

It was a lot of fun, and I ended up meeting some awesome people. I learned about new organizations, and was able to build new relationships and strengthen existing ones. Additionally, it was like a thousand degrees in Atlanta, and didn’t require me to leave my house, ha! ;)

How Will You Give Back With Your Business?

For my fellow entrepreneurs, startups, and small businesses, I hope I’ve given you some inspiration in beginning your own philanthropic journey. I’m proof that being charitable doesn’t have to be hard. And it doesn’t have to cost you a lot of time or money. But I promise, to those you end up helping, it will be extremely valuable!

If you’d like some direction on how you can be more giving with your business, I’ve written a four-step plan over at Honeybook/The Rising Tide Society. There, I’ll walk you through the stages of how to add philanthropist to your job title.

Download the free worksheet to walk you through giving back with your small business! (No opt-in required!)

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I'm Kristi Porter, and I started Signify to provide writing and consulting services to nonprofits and for-profit organizations with a social mission, primarily through copywriting, marketing, and business communications. I also teach solopreneurs and small businesses how to incorporate philanthropy and giving strategies. I believe that cause-focused organizations are the future of business. You're proof that companies can both make money and do good. And I'm here to help you get noticed and grow. When you succeed, we all win.

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6 Mistakes to Avoid When Partnering With a Small Business

So, you’ve landed that coveted partnership or large sponsorship with a small business. Feels great, doesn’t it? It’s a goal for many nonprofits and social enterprises, and if you’ve made it this far, you’re ahead of the curve.

However, securing the relationship shouldn’t be your goal. You need to work at making it successful…for both of you. By doing so, you’ll ensure a long-lasting relationship, and it will give you the confidence and reputation needed to repeat the process.

A successful partnership with a small business can lead to more money, more volunteers, a larger network, and much more. Plus, it gives you other people who will champion your cause.

Last week, we talked about the mistakes that small businesses should avoid when partnering with nonprofits. Today, we’ll chat about the mistakes you should avoid on your side of the relationship. Because not only should you play your role in making the partnership a success, but ultimately, it’s the only thing you can control.

Mistake #1: Don’t Explain the Benefits to the Small Business

Even the most generous of sponsors and partners have to ask themselves at some point, “What’s in it for me?” This isn’t rude or crass. It’s natural when thinking about entering into this kind of relationship. After all, they have a business to run.

Philanthropy often comes out of excess resources, whether that’s time, money, or something else. Businesses need revenue to keep their doors open and their lights on. So, while they often want to give out of the kindness of their hearts, they also realize that giving back is good for business.

So, be proactive and answer their question. Don’t let it be a distraction or guesswork on their part. This may only become a nagging feeling that grows as time passes.

Try to include both altruistic and practical answers. Altruistic options may be things like goodwill or higher employee engagement. Practical ideas could include press opportunities, showing off their logo on your website, or even single points of contact for streamlined communication. Think about what you can do to make the partnership intentional and beneficial.

Mistake #2: Don’t State Exactly What Your Nonprofit Needs

I get it. Having this kind of sponsorship or partnership within your grasp is incredibly tempting. And it’s easy to just accept whatever the business wants to offer you, even if you don’t need it.

However, you have to think of your organization first. If someone offers to create a new website for your nonprofit, for example, but you had a redesign done a year ago, don’t accept it just because it’s handed to you on a silver platter.

If a small business approaches you to partner, leave no room for ambiguity. Ask for exactly what you need. At times, there may be a compromise or alternative you hadn’t thought of, which is another great solution. But if they are only willing to give something you don’t need, this won’t serve you well in the end. And, honestly, other than getting your organization’s name on their resume, it won’t serve them well either.

The goal is to create a partnership or sponsorship that benefits you both, and one you’ll want to continue into the future.

Mistake #3: Don’t Follow-Through on Your Commitment

This advice requires me to dish out a little tough love. Nonprofits are especially understaffed and under-resourced. But, if you make a promise—keep it.

There may be all kinds of fancy benefits you list on a sponsorship or partnership package or presentation. I know you want to do everything you can to sweeten the deal.

But for the sake of your organization and the company you’re talking to, don’t include anything you don’t think you can follow through on. Broken promises can cost you much more than a relationship.

Even if you feel like you don’t have a lot to offer, keep it simple. Follow-through. And over deliver.

Be an nonprofit or social enterprise that keeps their word.

Mistake #4: Keep the Partnership a Secret

This mistake builds on a little of what we’ve already talked about, but in general, one of the best things you can do for your corporate partners is talk about them. It’s a fine line for them to do it themselves. They want to do good—and shout it from the rooftops—but they also don’t want to come across as sleazy or exploitive. So, this is something you can help them with.

Use your email campaigns, social media, and events to talk about what an awesome partner they are, and all they’ve done for you. This is also an easy way to get them to stick around.

Side benefit: It may also encourage other small businesses to work with you as well. It’s always encouraging and comforting to see a proven path to success.

Mistake #5: Ignore Those Bad Vibes

I’m not much of a “woo woo” person, but I do believe in intuition. And as I mentioned in last week’s post, I had to let go of a client that I knew better to work with in the first place. From the initial conversation, I knew this organization wasn’t going to be a good fit, even though they seemed like an ideal client on paper.

But I made excuses, thought it would get better, and jumped in anyway. And things went bad quickly. It was two very long months of working together before I decided to let them go. Meaning, it definitely wasn’t worth the money!

So, learn from my mistake. Don’t ignore those bad vibes! If things feel off in those initial conversations, don’t establish the partnership. It will likely be more trouble than it’s worth.

Even if your nonprofit or social enterprise is desperate, this company will almost certainly not be your answer. After all, if they can’t deliver on their promises, end up taking more time than you have to give, or deplete your man power or energy, you could end up worse off than you started. It would’ve been better to stay away and find a better corporate partner to begin with.

Finding the right company will be worth waiting for!

Mistake #6: Start With a Large, Make-It-Or-Break-It Project

It’s always best to start small, and with several conversations. Don’t rush into a partnership. Hopefully, there will be plenty of potential for a long-term relationship, but it doesn’t have to start that way.

Test the waters to see if it’s a good fit for both of. Make sure you can each hold up your end of the bargain, and build on that success.

Beginning with a big project, especially one where there’s a lot riding on it, will add unneeded stress and pressure. While it may work out for the better, I just don’t recommend it.

Instead, start with a small win. That will create a strong foundation.

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PSST: We’ve also built a sponsor presentation template if you need help getting started!

It’s customizable and easy-to-use, so all you have to do fill in your info and schedule the meeting!

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I'm Kristi Porter, and I started Signify to provide writing and consulting services to nonprofits and for-profit organizations with a social mission, primarily through copywriting, marketing, and business communications. I also teach solopreneurs and small businesses how to incorporate philanthropy and giving strategies. I believe that cause-focused organizations are the future of business. You're proof that companies can both make money and do good. And I'm here to help you get noticed and grow. When you succeed, we all win.

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