Trend Lines: Here’s how to maximize your charitable giving

December 24, 2013 

‘Tis the season, that time of year when charitable giving and the associated tax deductions come tow the forefront.

Almost 75 percent of small businesses participate in some kind of philanthropy, according to U.S. Small Business Administration surveys. Charitable contributions are good for business.

First, a well-thought-out program has certain tax advantages. Second, a sound program is invaluable in building strong public relations and a good company image. The SBA reports that 85 percent of consumers have a more positive image of those companies that engage in corporate philanthropy. In addition, the value of goodwill from a strategic contributions program is often a much better value than that of paid advertising. Third, studies show that employees who have a positive perception of their company’s charitable giving programs are five times more likely to stay with that employer.

What I find in my work is that while most small business owners see giving back as important, few of them put much thought into how charitable giving aligns with their business goals and objectives.

As you head into 2014 with your business (and tax) planning, think about developing a strategy for charitable giving.

Here are five tips to help you maximize your return in this important investment.

1. Set a budget and stick to it. The SBA reports that, on average, company charitable contributions run about 6 percent of profits.

Decide up front what you will allocate for contributions during the year. Also, think through how best you can help. There are more ways to help than writing a check. You can sponsor events, make in-kind donations (remember that product value is usually tax deductible and the value of your service is not), designate a percentage of sales on any given day to a charity, etc. It’s a good idea to develop your plan and go over it with your accountant to make sure you understand the tax ramifications for what you intend to do.

2. Set guidelines for the causes you want to support. If you are a local business, it’s a good idea to choose local causes. The more clearly your giving relates to your business mission, the easier it is to get employees, vendors and customers involved in your efforts. And, the more clear you are in setting these boundaries, the easier it is for you to make good decisions about where your money will go. It also makes it easier for you to say “no” when the request doesn’t fit your guidelines.

As an example, one company I worked for had a stated policy of supporting 1) education in the community, 2) the arts in the community, and 3) any worthy cause in which an employee was directly involved with the effort (and this is where the bulk of the money went).

3. Make sure you know the charitable organization before you give. Make certain the cause to which you are giving qualifies under IRS tax laws before you make the donation. Ask for verification of the organization’s 501 tax status. You can find good information on the IRS website to help you here (www.IRS.gov/Charities-&-Non-Profits). Also, check out Charity Navigator (www.charitynavigator.org) to learn more about the organizations you’re considering.

4. Keep good records. The obvious reason here is that you will need records and verification for your tax reports. Good records can also help you take a year-end look at how well you’ve stuck to your budget. Legitimate organizations will be happy to give you a written statement verifying your contribution. Keep records of those requests you chose not to fulfill. This will help you develop future budgets and can give you good information to develop future strategies.

5. Measure your results. Develop ways to measure your return on investment. Simple employee surveys, customer surveys and vendor surveys are one way to collect information. Keep track of any press coverage you receive, letters of appreciation and unsolicited comments.

Remember that your charitable giving is a key investment and treat it as such. Charitable giving doesn’t have to be complicated, but it does have to be well thought out. Develop a plan to tie your giving to your business strategy. Carefully check out the causes to which you give. Work with your accountant to understand the tax implications of your giving. Make your giving strategic and you can maximize your return on investment while you meet your goals of giving back.

An experienced business executive and organizational consultant, Jan Flynn teaches at the J. Whitney Bunting College of Business at Georgia College & State University.

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