- A tax-exempt charitable organization is not, by nature, the same as a tax-deductible one. While the former implies that the organization does need to pay taxes, the latter specifies that a business donating to the organization can deduct that donation from its own taxes. For businesses making donations -- with tax deductions in mind -- making sure that the organization you donate to is tax-deductible is crucial. To do this, LectLaw.com recommends contacting your local Internal Revenue Service (IRS) office, or asking for a copy the organization's Letter of Determination, which will indicate its designation. Under U.S. law, all tax-deductible organizations must be approved and given a designation, which -- for the majority of organizations that businesses donate to -- will be a 501(c)(3). The 501(c)(3) designation ensures that an organization is federally recognized as tax-deductible.
- Companies often donate money to charitable organizations. When it comes time to declare these donations, companies simply need to record the amount on their federal income tax returns.
For non-monetary donations, such as food or merchandise, the fair market value price of each item should be recorded (the IRS will let companies know if they have valued donations too high). When it comes to donations of property, the evaluation process becomes a bit different. The value of a donated property -- which is what the company can deduct -- is based on how much it would earn being sold on the open market. If there is a profit or capital gain on the property (meaning it's worth more when it is donated than when it was bought), the company can only deduct up to a certain amount of that gain. The IRS's policies on property donation deductions in these instances can be complex, and businesses should contact a tax professional to determine their eligibility.
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