We had a great question today from one of our members and thought we would provide a little help to get your ready for tax season.
Businesses get requests many time throughout the year from churches, non-profits and other legitimate organizations for donations to be used for auctions, prizes, raffles and gifts. That small business owner is responsible for keeping up with the donations to these organizations for tax purposes. All legitimate non-profits and churches are issued a tax id number that identifies them to the IRS. As a small business owner, you may want to require that those organizations requesting a donation provide a W-9 with the tax payer id number. This gives the small business owner a record to put in to their files to prove that they gave a legitimate donation.
All legitimate organizations will gladly give a copy of the flyer, advertisement, W-9 and business card for the files. All small business owners need to be aware of the potential for scams. Always ask for as much information as possible.
We have included some additional information for your benefit.
In order to qualify as a legitimate deduction, contributions must be made to a legitimate, public charity. Public charities include organizations such as religious organizations, educational institutions, governmental agencies, publicly supported organizations, and private foundations.
Most legitimate charitable organizations – particularly publicly-supported organizations, educational institutions, and private foundations – operate under a federally-approved designation, e.g. a 501(c)(3). A 501(c)(3) designation ensures that the charity is genuine and that it is accountable to rules that regulate nonprofit activity. It's a good idea to ask whether the organization has obtained a 501(c)(3) designation before you contribute. If they haven't, then the deductibility of your donation may be in jeopardy, not to mention the fact that the organization may not be as legitimate as they seem.
Strictly speaking, cause-related marketing does not necessarily qualify as a charitable deduction for tax purposes. However, it does qualify as a marketing expense deduction which is just as good. Even better, it can be a way to stimulate sales for your business.
Here's how it works: Suppose your own a donut shop. In an effort to do something good for the community, you agree to team up with a local nonprofit to help them raise funds for their annual giving campaign. To do this, you decide to advertise that 10% of the proceeds from every donut sold will be given to the nonprofit to help them achieve their fundraising goal.
The benefits of cause-related marketing are two-fold. First, your business plays an important role in raising funds for a cause you believe in. In addition, your store gets a boost in sales from customers who also sympathize with the nonprofit's cause. Even though they might normally buy donuts from the competition, if they believe in the nonprofit's cause they will give you their business – both now and in the future.