You donate money and property to worthy causes, such as advancing your faith, fighting homelessness and hunger and creating interest in your profession and business. To you, these are all expenses, and you probably budget for them. However, the Internal Revenue Service doesn’t see all of these acts of benevolence as expenses. For tax purposes, a donation is a deductible expense if it is the cost of doing or getting business. If you don’t have a business, only your donations to charities give you a tax break.
Expenses reduce the amount of business income you report on your taxes. If you can treat a contribution as an expense, you get to subtract it from your business’s earnings. Otherwise, the donation falls in the itemized deduction category. Because you automatically get a standard, or default, deduction to reduce your taxable income, your charitable donations and what you paid in state and local taxes, interest on a home mortgage and medical expenses need to be more than the standard deduction; otherwise, your acts of charity do not lower your taxes.
Normally, your donations to charities are itemized deductions because they are gifts. Charities include houses of worship, veterans organizations such as the Veterans of Foreign Wars, nonprofit schools and volunteer fire departments. To call a donation an expense, it must have a business purpose.
If you put a $15 advertisement in the program for the church’s Christmas play, you have a $15 business expense. You also have a business expense if you sponsor a race or other event for a charity. In these situations, you are advertising or sponsoring with charities to harvest or keep customers as well as improve the lives of people in your community.
Donations to Business Associations
You get to write-off contributions to business, trade and professional organizations as expenses if they're necessary for your business. For instance, if you give the local Chamber of Commerce money so it can lure a convention, you have a business expense, because the convention brings many potential customers to your shop or store. Dues you pay to belong to these groups also fit within deductible expenses. Because these organizations are not charities, your contributions and dues do not qualify for the charitable contribution deduction.
Social Welfare Organizations
Donations to social welfare organizations may support the common good and societal advances, but they do not count as charitable contributions for itemized deductions. You may qualify for deductible expenses if you use these donations to draw business. Deductible expenses can come from advertising in a free community newspaper and sponsoring a cultural festival or a child or youth team in a community sports league.
- Better Business Bureau: Charitable Donation Tax Deductions
- Internal Revenue Service: Publication 535 -- Business Expenses
- Internal Revenue Service: IRC 501c4 Organizations
- Internal Revenue Service: Charities & Non-Profits: Other Non-Profits -- Tax Treatment of Donations -- 501c6 Organizations
- Internal Revenue Service: Publication 557 -- Tax-Exempt Status for Your Organization
Christopher Raines enjoys sharing his knowledge of business, financial matters and the law. He earned his business administration and law degrees from the University of North Carolina at Chapel Hill. As a lawyer since August 1996, Raines has handled cases involving business, consumer and other areas of the law.