07 Feb Why You SHOULD NOT Take a Deduction for Charitable Contributions
Most people are used to making donations to take a deduction for charitable contributions. Some people tithe to their local church, others will give to a food pantry or other non-profit. However, that has changed for most taxpayers with the Tax Cuts and Jobs Act.
In a nutshell, the standard deduction was raised significantly, but it comes with a trade-off. Most taxpayers won’t be itemizing deductions but will be taking that standard deduction. If you want to know more about 2020 tax changes, click here for more info. You’ll probably still get a larger refund, but those charitable contributions won’t be deductible unless they exceed over $12,200 for individuals and $24,400 for married couples (standard deduction amounts).
Should I Take a Deduction for Charitable Contributions Anyway?
Definitely not. Let’s say you donate $3000 this year to charity. That can now be an itemized deduction, but only if you choose not to take the standard deduction. Because the standard deduction amounts are often so high, choosing to itemize instead is a bad move unless your itemized deductions are greater than the amounts listed prior.
Business Owners Have a Workaround
If you’re a business owner of ANY KIND, then pay attention. You can still make charitable contributions and get a deduction for them.
You can donate to charity as a business expense.
Before you ask, yes, this is totally legal. All you have to do is make the donation a promotional cost. Donate to a cause that is related to your business. You must make the donation with “reasonable expectations” that you’ll make that money back. You could donate to an organization to encourage clients to do business with you. Another strategy is to donate a percentage of your sales to charity. There are several other possibilities, but these are just a couple of strategies to get you started.
The only caveat is that you must have some way to prove that your contributions were to further your own business. Worst case scenario: the IRS determines that your donation was a charitable contribution, and denies it as a deduction. If you want to take a deduction for charitable contributions as a business expense, it’s crucial that you cover your bases beforehand.
Have any questions about expenses and deductions? Give us a call at 614-524-4888 or 614-310-0506!