Help Their Fundraising and Your Marketing at the Same Time
Non-profit charities usually suffer a dramatic fall in donations when economic times are rough, yet that is precisely when the need for the charities’ work tends to be strongest.
Your business may have been supporting a charity by providing supplies or services to it at a special discount. If the charity has fallen on such hard times that it is in danger of not being able to pay its bills, you might have to protect your business by no longer allowing the charity to buy on credit. Your workers would lose their jobs if you close up shop, so you can only offer “buy now, pay later” terms to customers who will indeed be able to pay. But there is still a way for your business to help the charity without putting your business at risk of having to absorb unpaid bills.
The key is not to do business with the charity. Give something instead. A properly offered gift will help the charity and gain you some great marketing at modest cost to you.
This article is based on USA tax regulations. If you live in another country, it is worthwhile to find out whether your country has similar rules.
This will work only when the official classification of the charity is appropriate. The primary USA non-profit categories are:
- Non-profit, but not certified as exempt from federal income tax.
- Certified as exempt from federal income tax under U.S. Tax Code Section 501(c)(4). Donations to this type of non-profit are not tax-deductible for donors.
- Certified tax-exempt under Tax Code Section 501(c)(3). Donations to this type of nonprofit are tax-deductible on donors’ tax returns.
Notice that last category. A USA taxpayer who donates to a 501(c)(3) organization is entitled to a tax deduction for the charitable donation. This is good even when the donation is cash, but for your business it is even better–and the marketing you get is extra gravy!
When your business donations to a 501(c)(3) non-profit are products or services rather than cash, your business is entitled to treat the fair market value of the donation as tax-deductible. This is fantastic for your business and the charity. Read on to find out more about how it works.
Choose a Tax Exempt, Tax Deductible Non-Profit
It Must be Certified 501(c)(3)
Choose the charity you want to help–and make sure it is registered as both tax exempt and tax deductible. Remember, what you plan to do will only turn out right if you donate to a non-profit that is registered with the Internal Revenue Service (IRS) as compliant with Section 501(c)(3) of the Tax Code.
Any such organization will be happy to provide you with a copy of documentation of its 501(c)(3) status. Keep the copy in your files. If your business is ever audited by the IRS, that document verifies the legitimacy of the tax deduction you will take for your donation.
Examples of non-profits that often have 501(c)(3) status include churches, educational institutions, soup kitchens, and shelters for the homeless.
Decide What to Donate
It Should Have High Market Value But Low Cost for You
First, consider what your business does. The perfect donation is something a lot of people would like to have, with a market value significantly above the cost to your business. Some ideas include:
- A hot air balloon ride for a group of four, which costs you $25 per person to provide but for which you normally charge $100 per person.
- Cookies made by your bakery at a cost of 50 cents apiece, for which you normally charge $1 each… or a luxury-grade decorated cake big enough for a large party, which you normally sell for four times the cost of the ingredients.
- Bottles of fine wine that a connoisseur would approve, which your restaurant gets at a 60% discount from retail value.
- Catering of a barbecue picnic for 10 guests, which costs you 1/3 of its retail value.
- A dozen polo shirts (enough for, say, a modest-sized company department) with a logo embroidered onto them by your automated embroidery machine, which your firm sells to companies at twice the cost of materials.
You can see the pattern. Your donation needs to look good, not cheap. What you donate should be worth enough to make a good impression, yet the cost to provide it should be low enough for you to absorb without strain.
Note: Steer clear of any legal stumbling blocks or special sensitivities. For example, you should not offer alcoholic beverages in a “dry county” and you should not offer Christmas-themed items to a Jewish charity.
Provide Your Gift for a Fundraising Auction
Make Sure You Donate It for a Fundraising Auction
Offer your donation to the non-profit as an item to be sold at a fundraising auction. A live auction will give you the best marketing exposure. Sealed bid auctions do not stir up as much enthusiasm. You may want to make the rounds of a few other businesses that are not your competitors and encourage them to donate items for the auction, too. If the non-profit rounds up all the donated items, they will approach your competitors–but if you help them bring in enough donated items, the charity will not feel a need to gather any more and your donation will not have to vie with a competitor for attention.
Now you can see why you want your donation to be especially enticing. As an example, a restaurant where I was an owner didn’t just donate meal vouchers. It donated Dinner With The Chef, one of its most prestigious special events. People paid four times the usual price of a dinner (or more) to attend one of these events so they could get the privilege of sampling most of the authentic Asian menu and hear the head chef tell all about each dish–its heritage as well as how it is prepared. When someone made the winning bid for Dinner With The Chef at a charity auction, it really meant something to the other attendees! It was also regarded highly enough for the auctioneer to get the bidding up to a very nice level.
How This Promotes Your Business And Cuts Your Tax Bill
Follow the restaurant’s donation a little further to see how this simultaneously markets your business and reduces the tax bill at the end of the year. I will use round but achievable numbers to keep it easy to understand. We’ve done this a few times and know how it goes.
Our example donation is Dinner With The Chef for 20 people, with wine. A routine Dinner With The Chef sold out at $50 per person, so we can use that event to document a market value of $1000.
The non-profit auctioneer is skilled and makes the Dinner sound delightfully appealing. (This is easy, since it has a great reputation around town.) Bids go higher and higher, maybe surpassing market value. All the bidders are at the fundraiser to support the charity–they want to pay top dollar to help the charity, and they want to be seen doing it. The result?
- Our winner bids $2400. (I’m not exaggerating. You really can achieve results like this.)
- The entire $2400 goes to the non-profit organization, which helps the non-profit a lot!
- The winner gets Dinner With The Chef for themselves and 19 friends.
- Everyone at the auction sees how generous the winner has been to the non-profit by paying so handsomely into the charity auction.
- The winner gets a tax-deductible donation on their personal tax return, so the winner will recoup most of the $2400 as a tax deduction. (The restaurant provides a memo stating the market value of the dinner, and the donor gets to deduct the rest of the donation–in this case, $1400.)
- The restaurant does not have to bill anyone or collect payment from anyone. It only has to provide the Dinner.
- The material cost of food and drinks for the Dinner is about 30% of fair market value, which makes it $300. The head chef and wine expert would be there anyway, and it only takes a couple of staffers to provide table service for a couple of hours or so. The extra labor cost is $50. Total cost to the restaurant is $350.
- The restaurant gets to claim a $1000 tax deduction (fair market value) for donating the Dinner to the non-profit, even though it only spent $350 to make the donation.
- Last but not least, everyone at the auction learned the restaurant donates valuable Dinners to a cause they care about. Money cannot buy an advertisement that delivers such powerfully positive marketing exposure.
- Some auction attendees and some of the friends invited by the winner to the special Dinner will go to the restaurant separately in the future because of this marketing exposure, so the restaurant gains new customers.
You can donate to a non-profit this way even when it is financially too weak for you to dare to sell anything to it–and that is the very time when the non-profit most desperately needs help.
Caution: Check on current rules for donations before you proceed. The IRS can change its rules at any time. As of this writing, IRS regulations allow our auction winner to deduct only the amount the auction winner pays that is above fair market value. For our Dinner, the winner can take a tax deduction of ($2400 minus $1000) = $1400.
The non-profit has to provide a receipt including this information. To issue the receipt, the non-profit needs a statement of fair market value for the Dinner from the restaurant. In general, the extra effort for documentation is minor, and the potential to “do well by doing good” is great!
More About Non-Profits / Charities
Many business owners who donate to charities are involved in charities themselves after hours. Running a non-profit successfully is a lot like running a business successfully, but harder.
Business owners can offer raises and promotions to workers who perform well, and have a number of ways to discipline workers who step out of line. Businesses can be choosy about who they hire and can fire people who do not fit the needs of the business. People managing a non-profit have to do the best they can with the people who volunteer or who are willing to work for the often-low wages the non-profit can pay. If someone ever applies for a job at your company and they were previously instrumental in running a successful non-profit, you probably want that person on your payroll. When they’ve been successful in the non-profit / charity arena and you give them the additional resources of a for-profit business to work with, you turbocharge their engine.