Privately held for-profit companies enjoy considerable freedom when it comes to corporate giving. They can do pretty much what they like. If they want to claim a tax deduction, of course, the recipient needs to be registered as a 501(c)(3) organization with the Internal Revenue Service and thus qualified to issue a donation receipt. 

The tax laws currently allow corporations to take deductions for up to 10 percent of their taxable income—a “tithe,” if you will (to use a decidedly non-IRS term!). This helps the overall tax liability of the giving corporation. Of course, this should not be viewed as a firm ceiling. Gifts beyond 10 percent are certainly legitimate as well as needed. They just won’t help you at tax time in the current year—which, when you stop to think about it, is a sideline issue. (Many countries around the world don’t give a tax break for any charitable giving.) You can always carry forward the donation to apply to a future year’s taxes, however. 

One way to view all this is to calculate what the donation actually costs in real dollars. If you are saving, for example, a 34 percent federal tax on that money, plus a 5 percent state tax, your donation of $1,000 only costs you $610. The other $390 would have been paid out in taxes had you not made the gift. 

A different way to give, if the circumstances are right, is to sell an asset (say, a piece of real estate) to a charity at a considerable discount from its appraised value. This generates a “loss” at tax time. The charity can then use the gift, or resell it at full value, thus keeping the margin for benevolence. 

Publicly traded for-profit companies operate under essentially the same tax rules—but the new factor here is shareholder opinion. Investors are in the game to get maximum returns and may not like seeing potential dividends go out the door in another direction, no matter how altruistic they might be in their own personal lives. Or they may not like the philosophical bent of a certain recipient.  For this reason, the B4B concept is harder to “sell” in the climate of a publicly traded corporation, but not impossible.  Corporate culture is moving toward more socially responsible philosophies. 

Nonprofit companies have a different set of challenges, although not insurmountable ones. Any corporate giving must stay within the boundaries of the stated exempt purpose in the articles of incorporation. If you’ve said that your company exists to support children’s education, for example, you could not be pouring earnings into making an adult-level religious film, worthy though it might be. You have to stick to your declared purpose as a nonprofit. 

Setting up a 501(c)(3) has gotten more complicated in recent years, taking longer and taxing the patience of entrepreneurs who are eager to start giving. Each person’s situation is different, of course. Tax counsel should always be sought in advance. It is fair to say that if you want to keep things simple, it may be expedient simply to remain on a privately held, for-profit footing and make donations directly. 

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