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Donating to Charity: Quick Tips for Safe Giving

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After setting up and successfully running your own small business, it’s an empowering and fulfilling thing to know you can give back to your community or really support a cause in which you believe. In addition to giving back to the community, you can also take advantage of tax deductions for your charitable contributions during tax season. However you choose to give as a small business, you should make wise choices in giving that will give you a real sense of satisfaction, reflect positively on your business, and also not cheat you on your generous dollars.

Before you write that check, set a plan in place for how much you would like to budget for charitable giving each year. That way you can spread out your charitable contributions and provide a framework for what types of charities and the total annual amount your business can afford to give. 

Here are some safety tips to guide you:

Choose a charity or cause wisely. If you are not very familiar with a charity’s work, investigate the group before you make your donation. Overall, it is best to contribute to an organization that you already know. You may also inquire about the exact service or activity your funds will end up supporting. Honest charities should be willing to communicate with their donors about their spending activities. Additionally, it does pay to do a little research on your chosen charities to be sure that they are legitimate nonprofit organizations. Try using online verification sites such as Charity Navigator to review ratings and check the status of your prospective nonprofit with objective feedback from other users.

For tax purposes, ensure that the charity is tax-deductible. Some nonprofit organizations participate in political activities that prevent them from accepting tax-deductible donations. If you donate to these organizations, you will not be able to deduct your donation on your federal tax return. If the organization is “tax exempt,” this simply means that they do not have to pay taxes, but it does not necessarily mean that your donations are tax-deductible. Ask the organization for its tax status to be clear and look for a nonprofit 501c3 federal status.

Be sure to obtain and keep a record of your donation. In addition to helping you properly manage your bookkeeping and cash flow, having a record for your donation will also be needed to deduct taxes at year end. If you contribute less than $250, you may present a bank record, a cancelled check or a receipt or letter from the charity. The receipt or letter must have the organization’s name, the date, and the amount that you donated. If you contribute more than $250, the IRS will not accept a cancelled check alone – you will have to furnish a receipt from the charity.

Be careful when donating online. Donating to a charity online offers many conveniences, but can also be disadvantageous. When donating to a charity online, make sure you are already familiar with the charity, then make sure there is a working contact for the charity. A physical address and phone number are fair indications that the charity is not a scam. Be sure that the organization is still current with the information you view on their website. Many nonprofits do not update their websites regularly. Be sure the site uses encryption technology to protect your personal payment information, and also make sure there is a privacy policy. Print out the confirmation of your donation and keep it for your records and for tax filing. Donations to foreign charities are not – of course – tax deductible.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations. To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Copyright Information 2018 Professional Association of Small Business Accountants

The Inside Scoop on Donor Advised Funds

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Looking for a different way to donate to your favorite charity? Many investors are finding that donor advised funds are a creative way to contribute dollars while still receiving a tax deduction for their efforts.  The Donor Advised Fund (DAF) is a charitable vehicle created at a public 501(c)3 organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors who receive an immediate tax benefit while recommending grants from the fund to charities of their choice over time.  Instead of making a one-time contribution to your favorite charity, contributors of donor advised funds can either set up their own private fund or use an established DAF and then direct how the contributions are distributed.

 

A Little DAF History

Donor advised funds aren’t new; rather they originated in the 1930’s.  It wasn’t until 1969 that congress established a legal structure for them.  Thirty years later, DAFs took off increasing in popularity and today the funds account for “more than 3 percent of all charitable giving in the United States.” In fact, Fidelity Investment’s Charitable Gift Fund surpassed the United Way as the largest recipient of charitable funds in the country. According to author Helene Olin in Atlantic Monthly, “Donors put $23.27 billion in Donor Advised Funds in 2016, a 7 percent increase since 2015 and 18 percent since 2014.”

How it works:

  1. Contributions are placed into the fund.
  2. Immediate tax deductions are received by the taxpayer for the amount they have ‘donated’ into the fund.
  3. Administration of the DAF including investments (in the stock market) is ongoing.
  4. Either immediately or at some point in the future, the taxpayer makes grants to qualified charities of his/her choice from the fund.

Once the money is in the fund, the dollars cannot be returned to the donor and become the property of the ‘fund’. The underlying issue for nonprofits is the inherent delay between taxpayer donations to the fund and their eventual distribution to the nonprofit.  Appreciative recipient nonprofit organizations argue that because the funds don’t have to be released on any set time horizon, it is very difficult to determine or plan for the contributions. Additionally, because the funds are anonymous, donors can elect to remain in secret making it harder for nonprofits to thank donors and cultivate new supporters. While these are legitimate frustrations for the nonprofits, reports say that donors under age 50 are gravitating more frequently to the Donor Advised Funds. To survive with the next generation of donors, nonprofits are going to have to find a way to work with these funds and find more creative ways to market to donors and receive the funds.

 

 

Who can set up a donor advised fund?

The good news is that donor advised funds are not just for the wealthy. For funds like Charles Schwab’s Charitable fund, anyone can start a fund with as little as $5,000 in irrevocable funds and add additional contributions, if any, of as little as $500. Donors can also control how and when the funds are distributed. Funds can remain in the fund in perpetuity. Unlike charitable foundations, that must by law allocate 5 percent of their dollars annually, DAFs are not bound by the same distribution rules.  For the more affluent investor, supervised, or ‘administered’ funds can be started with a minimum of $250,000 or more and select an individual investment advisor to manage the fund. Of course, administrative and investment fees vary based on the type of account under management.

 

If you have questions about how to start a donor advised fund or financial investment strategies, talk with a PASBA Small Business Advisor.

 

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.