To donate to charity might seem counterintuitive to those running a for-profit company. However, it is important to keep in mind that charitable giving can not only make a big difference to the recipients of your generosity, but it can also provide a net gain to your business. In addition to the potential tax advantages of charitable giving, donations have been shown to boost employee morale and productivity, improve a company’s brand image, and build customer relationships. 

There’s no one-size-fits-all plan for giving back. Each business should choose a cause that aligns with its brand, culture, and mission statement. To reap the full tax benefits, businesses should also make sure that they understand Internal Revenue Service (IRS) rules applicable to charitable giving, which have become more complicated in recent years. 

Small Businesses Make a Big Impact

Approximately 75 percent of small businesses donate an average of 6 percent of their profits to charitable organizations annually, according to SCORE, the nation’s largest network of volunteer, expert business mentors. Compared to larger businesses, small businesses donate 250 percent more to local nonprofits and community causes. Small businesses most often support their communities in the following ways: 

Why Doing Good Is Good For Business

Rather than thinking of charitable donations as a cost, think of them as an investment that helps to differentiate your business in the eyes of your employees and your customers. 

Employee Engagement and Performance

Evidence suggests that charitable donations are an effective means of increasing job performance, especially among millennials, who tend to be philanthropically-minded. 

A study published in the journal Management Science found that including employees in a company’s charitable giving was associated with a 13 percent increase in job performance. Other research indicates that charitable giving and volunteering are directly related to employee engagement. Charitable giving may also improve company culture. Positive company culture has been shown to make employees happier, more loyal, and more productive. 

Company Brand and Reputation

It is not just employees who have a favorable view of companies that give back. Charitable contributions can also provide good public relations and attract more customers. 

Aside from the benefits that donations provide to local organizations, donating is a way to connect with the local community, which is the backbone of a small business. Through donations or sponsorship of fundraising events, your business can build relationships with other organizations and individuals, which, in turn, can build name recognition and customer loyalty, resulting in increased business. 

Today’s consumers care about where their money goes. More than 90 percent of consumers expect companies to do more than make a profit, according to a survey from Cone Communications. Many are even willing to pay more for a socially responsible product. 

Charitable Giving and Tax Deductions

Deducting qualifying charitable donations reduces the amount your business pays in taxes. One of the first rules of charitable contributions is that you must itemize deductions. Because standard deduction amounts increased under the Tax Cuts and Jobs Act of 2017, fewer people are itemizing deductions than in past years. 

If you are not itemizing deductions, but still want to give charitably and receive a tax break, there are ways to get around the law, including the use of a donor-advised fund, giving larger amounts every other year, and donating appreciated assets (like stock). Talk to a financial expert about which donation strategies make the most sense for your business. 

If you do itemize your deductions and claim charitable donations, your donations will need to meet certain requirements, including the following: 

Next Steps

For many businesses, the benefits of charitable giving make the decision to give back easy. However, there is nothing easy about complying with the complex federal tax code. If you are interested in creating a specific giving plan, consult one of our experienced lawyers who can help your business reap the full tax advantages of charitable donations.