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Charitable Tax Contributions

Daniel Cox's Profile

I am opening up a charity to help Fallen Military personal that have made a mistake in life and ended up with a felony. Would it be against ethics to solicit accountants to possibly suggest their clients to donate to my charity for tax savings? What would be the best way to go about doing this? Should I offer like a "I scratch your back your scratch may back" kind of offer? Also, what are the benefits exactly to a company? I would like to go to small businesses and inform them on how giving to may charity will actually save them money in the long run. I am kind of looking for an educated example of this. Something like a cost comparison so that they can see what their savings would be like if they donate. For example, Non-donating if you make $100,000 in profit after everything your tax bill would be $12,000. Donating option, if you make $100,000 in profit, Donated $4,000 then your tax cost would be $7,000 saving the company $1,000 in taxes. I don't know if the benefits of charitable donations are set up in a way to help the company out like I have put into the example. Thank you for any advice

Answers

Tony Morales
Title: Certified Public Accountant
Company: James, Surman & Goldberg CPA
(Certified Public Accountant, James, Surman & Goldberg CPA) |

Hi Daniel,

First, I'd like to say thank you for choosing a not-for-profit venture, our veterans deserve this type of help. Although I don't believe soliciting accountants for charity referrals is unethical, it is unlikely you'll find many leads this way. Most accountants that I know, including myself, are simply not in a position to do so. "Selling" our clients on things is circumstantial at best, impractical at worse. This is because we mostly work in the past. Most clients come to us after the year ends for their tax preparation, not during it.

That is not to say that there aren't opportunities there. I myself have a couple private foundations who already contribute to veteran organizations. But most small businesses do not operate according to your example. Most small businesses are what is known as "pass-thru entities", where their business activity flows through to their personal tax return based on the percentage of ownership in the business.

For example, you own 50% of Company X. Company X made $100 profit. You report $50 on your personal tax return at the end of the year, based on your share of Company X's profits. Charitable donations work this way as well, and therefore, is a write-off at the individual level (NOT the business). This means that the charitable donation the businesses make to you is only deductible to the owners, if the owners of the business itemize deductions on their expenses (via Schedule A).

The recent Tax Cuts and Jobs Act of 2017 (Trump Tax Cuts) increased the standard deduction for all individual taxpayers; thereby, "simplifying the tax code" by disqualifying a great number of taxpayers from having to itemize deductions. In theory, they did make filing some tax returns easier. But with the unintentional consequence of hurting charitable organizations by disallowing more people from enjoying a tax benefit off their donations.

From an accountant's point of view, charitable donations can be an effective tax planning tool, to the extent the client wants to be charitable. Charitable donations do not save money over the long run, unless the client originally intended to be charitable. At which point, they normally have a pre-determined set of organizations in mind and our input is limited.

Lastly, be sure that you are an IRS approved tax-exempt organization first, before committing to a strategy, as there may be restrictions to your plans based on your designated non-profit organization classification.

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