Charitable Giving Tax Updates for Businesses

Business owners benefit from having strong local communities where employees want to live and work and where customers want to do business. That means that good communities are good for business, and one way that business owners can enhance their communities is by supporting local organizations and causes through charitable giving.

While the new 2018 tax law didn’t focus much on the topic of charitable contributions, there were two changes that impact charitable giving. First, if you own a pass-through business, like an S corporation, partnership, LLC or proprietorship, the new law increased to 60% the amount of your income that can be offset by charitable contribution deductions. Second, the new law increased to $24,000 the standard deduction that married couples filing jointly can take. That means that many people will no longer itemize deductions (and you must itemize in order to deduct charitable contributions).

If you are unable to itemize your deductions, including charitable contributions, there are some giving options and techniques to consider, including:

• Bunching Itemized Deductions
  • If you have the flexibility to time the payment of qualifying deductible expenses, consider bunching these payments, including charitable gifts, into alternate years. That can increase the likelihood of being able to itemize deductions in alternate years
• Donor-Advised Funds
  • You can make a contribution in one tax year to establish or add to a donor-advised fund. If the gift is large enough, you may be able to itemize deductions that year. In other years, when your deductions are not large enough to itemize, you can ask the donor-advised fund to support your favorite charity by a payment from the fund. Donor-advised funds are relatively inexpensive to establish and maintain; find out more about them by contacting a charity you want to support.

If your business operates in Pennsylvania, find out about the Pennsylvania Educational Improvement Tax Credit (EITC) program administered by the Department of Community and Economic Development (DCED). EITC contributions to DCED-approved organizations can be eligible for credits against Pennsylvania taxes you or your business pay (like Personal Income Tax, Capital Stock Tax or Corporate Net Income Tax) equal to 75 percent of your contribution. Eligible contribution from a business include donations of cash or property, as well as services (the net cost to the donating business of the wages and benefits of the individual performing the services). The process is a little complicated (both the donating business and the receiving organization have to go through a process of DCED approval), but it’s worth the time.

Gross McGinley’s business tax attorneys can help you understand how doing good for your local community is also good for your business.