Charitable contributions come in many shapes and sizes, as well as their fair share of confusion regarding whether or not they are tax deductible. One way to help eliminate confusion during tax time is to properly account for these contributions throughout the year in the accounting general ledger. Contributions that are made to public charities that possess a 501(c)(3) status comes with an acknowledgement letter that gives validity to the gift. All contributions that fit in this category during the year should be coded together in the general ledger. Throughout the year this account shows legitimate charitable contributions with documentation as proof. Other charities that might not have 501(c)(3) status also need a place in the general ledger. These expenses should be coded in a separate charitable contribution account along with documentation showing what the contribution was for. Smaller charities might include a community fundraiser, youth athletics, and food drives. Your CPA will look at this account to determine the amount of these expenses that qualify to be deducted towards the business’s income. For example, a business owner gives money to a local youth soccer program and in turn the soccer program lists the business as a sponsor. This contribution can be coded as advertising expense and be fully deductible toward income. In most cases smaller charities give back consideration for gifts received. Being able to give and be generous is a great thing for a business owner, but it is also important that the business receives proper credit for its good deeds. Political contributions do not qualify for tax deduction purposes and should be coded in the general ledger in a separate account in order for your tax preparer to adjust accordingly. Remember to stay organized and code each contribution in a way that can be analyzed in the future. Proper accounting takes the guess work out of year end tax adjustments and gives the business owner piece of mind knowing that good deeds do not go unnoticed.
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