Posted on November 25, 2012

Small Businesses Should Give Strategically, Experts Say

While small businesses often see their giving to charity repaid in the form of good publicity and customer loyalty, they can leverage that giving even more by being strategic about their choice of recipient organizations and paying attention to tax benefits, Reuters reports.

Companies that have razor-thin margins and struggle to conserve cash should take a selective approach to charitable giving that maximizes their reputation in the community as well as their tax deduction, small business owners and advisors told Reuters. Greg O'Neill, co-owner of Pastoral Artisan Cheese, Bread & Wine, a small business in Chicago that generates roughly $10 million in annual gross revenue, gave roughly $20,000 in 2011, primarily to local organizations focused on providing healthy food and providing sustainable agriculture or that feature Pastoral's products at events. "We can't save the whole world," said O'Neill. "We can save a piece of it and make a mark."

Financial planner Lisa Kirchenbauer of Arlington, Virginia, supports the idea of business owners giving to causes that they and their employees care about, but she advises her clients to steer clear of controversial organizations. "There's a bit of discernment you have to go through," Kirchenbauer said, adding that small business owners need to do more than the usual vetting of charities to make sure the mission and activities of the groups they give to align with their business objectives.

Moreover, while it may seem logical to donate business services such as consulting, so-called in-kind donations may not be the most tax-favored approach for businesses with tax structures that pass through to the owners' or partners' personal income tax returns, said Ruth Goran, a certified public accountant who works with small firms in the Chicago area. Neither the typical cost of the service nor the value of an owner's time can be deducted, although out-of-pocket costs associated with providing them can.

Regardless of how they choose to give, small businesses might want to take advantage of existing tax laws and donate before the end of the year, as tax policy changes in 2013 could include some sort of cap on deductions for charitable donations. "We really don't know what's going to happen; there's so much uncertainty," said Melissa Labant, director of taxation for the American Institute of Certified Public Accountants. "I think this is the year to make charitable contributions."