How to Give Wisely
With the right strategy, your small business could make a big difference to a nonprofit
Have you shied away from corporate philanthropy for fear that it would divert valuable dollars or management energy away from your business? That's too bad. Few people have more to contribute to their communities than entrepreneurs do.
But don't blame yourself. Thanks to several common myths, many business owners have a hard time figuring out how to start a charitable-giving program in their companies. You can begin by clearing up those misconceptions.
Myth 1: Since charities need cash, owners of start-ups and cash-hungry businesses can't offer help without causing their businesses to suffer.
Reality: Although nonprofits can always use money, many have equally pressing needs for equipment (especially office equipment such as computers and fax machines), food and clothing, and volunteers. Those volunteers might range from people who can spend an hour reading to children, to executives who can offer business-management skills.
"We've always donated excess food from events we've worked on to organizations like shelters for the homeless or abused mothers, or AIDS groups," says Mary Micucci, whose company, Along Came Mary!, is a Los Angelesbased caterer. "The important thing to remember is that you can get involved through your products, through your time, or through your--or your company's--cash. What I do is get involved through whichever of those ways makes the best sense for the charity I want to support and for me."
Strategy: If cash gifts aren't an option, look for alternatives like donations of equipment or inventory, or programs that promote employee or customer involvement. Ask your managers for ideas.
Myth 2: If your company is small, it can't make a significant impact.
Reality: If you target your involvement to small programs within your community, you'll be able to have a notable impact, often quite quickly. For example, with just $1,500, McGunn Safe Co., a Chicago manufacturer, provided seed capital for a new local early-childhood literacy initiative. "The idea for the program was great--that inner-city parents would be rewarded with grocery money when they spent time helping their children read. Our gift helped them get started," explains company president Pat McGunn. The company also got its staffers involved by asking for used-book contributions to help build the children's library.
Strategy: Consider targeting small organizations whose needs fit your company's scope--and let gift giving grow along with your business. Look for ways that employees who want to help can do so.
Myth 3: You'd like to be part of a high-profile charitable drive, but you worry that the organizers will pay attention only to companies with big names and big bucks.
Reality: That's changing, in part because of a recent trend among nonprofits to look for ways to form partnerships with both large and small companies. A good example is last fall's Dine Across America program, a fund-raising effort for Share Our Strength, a national antihunger nonprofit. American Express and some other big companies covered the program'sexpenses for administration, advertising, and the like. That helped the small companies that participated--largely restaurants and food wholesalers--to channel all the money they raised directly to the needy. "We purposely designed the program so that smaller businesses could get involved in any number of different ways," explains Ronald Cohen, coordinator for the New York City effort. Some restaurant owners asked customers to add donations to their credit-card bills, while others donated the proceeds from a special dish.
Strategy: Investigate your joint-venture options by contacting large nonprofits that appeal to your interests. Also ask your trade association or chamber of commerce about relevant national drives.
Did you know that... although the IRS recognizes more than 20 kinds of nonprofit organizations, not all of them are eligible for fully tax-deductible gifts? Generally, the best tax benefits are available for gifts to those nonprofits classified by the IRS as "public charities." You can identify a public charity by requesting a copy of its 501(c)(3) documentation, issued by the IRS. Other nonprofit organizations, such as civic leagues or private foundations, are not deemed by Congress to provide benefits for the whole public.
Donation Tax Tips
Different tax rules apply to personal and corporate gifts. Here's a primer on those rules, provided by Steven Hartstein, a certified public accountant and lawyer with the accounting firm of Skoda, Minotti, Reeves & Co., in Mayfield Village, Ohio.
Cash donations by C corporations:
On these, the deduction is limited to 10% of the company's taxable income. If a company donates more than that, the excess can be carried forward over a period of up to five years. In close calls, check with your accountant, because the IRS uses a slightly different definition of taxable income than usual for these calculations.
Cash donations by individuals, S corporations, limited-liability companies (LLCs), or partnerships:
Deduction limits vary, depending on the type of nonprofit receiving the donations. With cash gifts to public charities, up to 50% of an individual donor's adjusted gross income (AGI) may be claimed.
If the donor is an S corporation, LLC, or partnership, the deduction flows through to the owners in proportion to their equity ownership. For example, a person who owns 25% of an S corporation can claim 25% of the company's donations on his or her own return, subject to the individual AGI limits.
Donations of equipment or goods by a company or an individual:
In general, if the goods are new, you can deduct their fair-market value, within the relevant limits. Consult your accountant before making any claims on gifts of inventory or of used equipment, because the rules are complex.
Resources: If your company is interested in donating equipment or inventory, rather than cash, one nonprofit organization worth contacting is Gifts in Kind International. It serves as an intermediary, collecting clothing, office technology, building equipment, and other useful materials and then distributing them to more than 50,000 nonprofits and schools nationwide. If you need help designing a donation program that makes sense for your company, or if you're ready to make an immediate donation, call 703-836-2121.
ALONG CAME MARY!, Mary Micucci, 5265 W. Pico Blvd., Los Angeles, CA 90019; 213-931-9082
MCGUNN SAFE CO., Pat McGunn, 4917 S. Central, Chicago, IL 60638; 708-458-7233
RONALD COHEN, c/o Cornucopia of Food, 47 W. 34th St., Room 1020, New York, NY 10001; 212-695-3639
SKODA, MINOTTI, REEVES & CO., Steven Hartstein, 6685 Beta Dr., Mayfield Village, OH 44143; 216-442-8642