The Tax To-Dos of Corporate Giving
Thanks to a variety of factors – from a stabilized economy to a widespread push for social responsibility – U.S. corporate charitable giving is on the rise. A new report published by Giving USA found that corporate donations increased almost 14 percent from 2013 to 2014, reaching a total of $17.77 billion.
The corporate giving process, however, goes far beyond writing a check. As corporate charitable donations rise, businesses face more pressure to properly report and deduct their philanthropic activity for tax purposes.
The Internal Revenue Code includes a number of rules and limitations around corporate charitable giving that U.S. businesses need to mind when preparing their annual tax returns. Here’s a look at three of the more complicated maneuvers corporate tax teams might face when calculating the tax impact of their company’s donations:
- Excess contribution carryovers: In any tax year, corporate charitable deductions are limited to 10 percent of the company’s taxable income. That said, the IRC does stipulate that businesses can carry over charitable donations in excess of that 10 percent threshold over the next five tax years. Going forward, however, contributions made within the current tax year still take precedence over carryover donations.
- Charitable giving and NOLs: Corporate tax teams must also stay on top of the relationship between corporate donations and net operating losses. If a business has both current-year donations and a certain amount of NOL carryovers, the NOL may be large enough to offset its taxable income. In these instances, the charitable donation deduction would be converted into an NOL rather than subtracted from the overall taxable income.
- Non-cash property contributions: Accurate charitable donation tax treatments hinge on good recordkeeping as well. Businesses that claim deductions in excess of $500 for non-cash property contributions are required to include a description of the property and the method used to measure its fair market value with their tax returns. Documentation about the property’s original acquisition and costs incurred by the donor (during the year prior to giving it away) are also important to keep on hand.
Corporate charitable giving is an honorable act, but it shouldn’t be an additional burden on tax departments. Solutions like Corporate Tax Analyzer™ take the pain out of performing the most intricate charitable donation tax calculations by automatically applying the 10 percent deduction limitation and five-year contribution carryovers.
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