We know that most charitable donations are tax deductible. And we're always looking for ways to lower our small business' tax rate. So what if your small business wants to make a charitable donation? Or better yet, set up a tithing?
A small business tithing might be tax deductible, but it will depend on what organization your small business is contributing to and how your small business is organized. Here are a few keys to whether your small business can deduct tithing:
As opposed to a one-time donation, tithing is the act of gifting one tenth of your income to a religious organization. Whether your small business' tithe is tax deductible will depend partly on who you're giving it to. There are three general rules for charitable donations:
- The organization to which you give must be a 501(c)(3) exempt organization;
- You must keep records of the donation; and
- You must itemize your donation with a Form 1040.
So make sure the religious organization to which you tithe is properly set up as a non-profit and keep good records of your tithing.
How much you can deduct for small business tithes will vary. If you operate a sole proprietorship or partnership and report business income on your personal taxes, you can normally deduct up to 50 percent of your adjusted gross income for tithes. However, there might be limitations of 20 or 30 percent under certain circumstances. If your small business is incorporated, you may be limited to the standard 10 percent tithing amount.
There are benefits to small business tithing, apart from the tax breaks. Charitable giving can enhance your business' reputation, for example. But there are numerous considerations to small business tithing as well, from your revenue and your incorporation structure to intricacies of the tax code. If you need help setting up a business tithing program, or with any other business-related tax questions, you can contact an experienced tax attorney near you.
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