Basic Business Principles: How to Donate in a Tax Efficient way

July 09, 2013

There are many Christians who are engaged in business and seek to have a payoff not only in profits, but in the ability to support the work of the church. The founder of Hobby Lobby, David Green, is a strong Christian and the company is known for running faith-based newspaper advertising during Easter and Christmas. The founder of Chick-fil-a, Dan Cathy, is another Christian businessman. Chick-fil-a is known for their financial support for various Christian organizations. Neither of these businesses are open on Sunday, so that workers and customers can focus on the Sabbath day.

When it comes to donations, there are limitations to the amount of money that can be donated in a tax-deductible way. If you are seeking a tax deduction, keep in mind that you can only make donations to 501(c)3 organizations or churches. You will need a receipt from the organization for amounts greater than $250. The receipt should state the amount of cash donated, the date of the donation, and whether any goods or services were provided by the charity in return for the donation. The rules are slightly different for corporations and individuals.

A corporation can donate up to 10% of its net profit in a calendar year tax-free. Any credit for donations in excess of 10% can be claimed in a later year. If a corporation wishes to donate more than 10% of its net profits, it will incur state and federal income tax first, and then the corporation will be free to donate as much of the remaining profit as it would like.

For individuals, up to 50% of the adjusted gross income is tax deductible. Keep in mind that individuals are still responsible for payments for social security and medicare, and these are not affected by donations. The tax deduction will apply toward state and federal taxes. Keep in mind that individuals who claim high levels of tax deductible donations are increasing their likelihood of audit scrutiny from the IRS.

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