Corporate Charitable Contributions

Cash and material contributions to qualified charitable organizations are considered tax-deductible expenses for the corporation, assuming that all proof requirements are met relative to contribution amount. Single contributions at a value of $250 or greater requires written acknowledgement of receipt of cash or materials received from the recipient. Contributions of any amount will require a receipt, bank statement, letter, or other written documentation validating the contribution. Any property contribution exceeding $500 in value requires a schedule that provides property description as well as details the method by which fair market value (FMV) was determined. Such schedules must be attached to Form 8283, which is required for reporting and claiming deductions of this type (IRS, 2007).

There are specific qualifications and limitations associated with charitable contributions by the corporation, under which allowable charitable expenses are evaluated. The charitable contribution must be paid during the year in which it is claimed, unpaid pledged contributions do not qualify for deduction until paid. Corporations using the accrual method of accounting may claim a charitable deduction in the year in which the deduction was authorized assuming that it is paid before the 15th day of the third month following the end of the accrual year. When donating property or other nonmonetary contributions, the deductible amount is based on FMV. In any given year, the corporation is limited to a charitable contribution deduction not exceeding 10% of taxable income (Pope, Anderson, & Kramer, 2006).

Corporations have the option to carry forward any charitable contributions that exceed the allowable amount into the next 5 years following the year in which those excessive contributions were incurred (CTU Online, 2008). Excessive, carried over charitable deductions are allowed in following years only after that current year's contribution deductions are accounted for, in which the maximum deduction allowable of 10% of taxable income for the current year is still in place. This is helpful information, and a helpful planning tool if there are specific circumstances, specific one-time contribution or consideration for a special cause arises, and future incomes are expected to increase. The carry forward privilege would allow the corporation to carry the additional or excessive contribution above 10% into following years as a deductible charitable expense, wherein excess occurring in the following years can be carried forward into the succeeding five years. Any excessive contributions not deducted within the five year period carryover period are lost (Pope, et al.).

Whether the corporation will be capable of claiming all, or only a portion of its charitable contributions, it will experience a tax savings based on the direct decrease of income for the deductible amount and potentially accumulate tax benefits into the following operating years or periods. However, the benefits of giving to others, improving the quality of life for individuals and communities is invaluable to a corporation's future success and the public's perception of the company. There are proven corporate benefits relative to employee satisfaction and commitment to the company, customer commitments to specific brands, and shareholder's commitment to becoming and remaining involved in a company maintaining a high degree of responsibility and consideration for others (George, Jones, 2005). Keeping this in mind, effectively maintaining a balance between contributions and benefits is essential to managing finances and expenses, but should not represent the only basis upon which the decision to, and how much to contribute for the company as there are significant associated, non-quantifiable benefits and advantages associated with acts of benevolence.

Sources Cited:

CTU Online (2008). Phase 5 course materials. Colorado Technical University Online.

Colorado Springs, CO. ACC618-0803A-01: Taxation and Business Decisions.

George, G.R., and Jones, J.M. (2005). Understanding and managing organizational

behavior, a custom edition. Pearson Custom Publishing.

Internal Revenue Service (2007). Instructions for Form 1120. US Treasury. Retrieved on

August 5, 2008 from Web site http://www.irs.gov/pub/irs-pdf/i1120.pdf

Pope, T.R., Anderson, K.E., and Kramer, J.L. (2006). Prentice Hall's federal taxation

2006: comprehensive. Pearson Prentice Hall. Upper Saddle River, NJ.