Why You Need to Keep Track of Your Donations to a Charitable Organization
When you donate to charity, you should also request for a Donations Agreement. A Donations Agreement acts as proof that the donation occurred and that you didn’t receive anything in return for your contribution – it is, in essence, a receipt for your donation. A Donations Agreement can be filed with your personal or business tax return in April. The IRS rewards charitable donations to Non-Profit Organizations formed under Section 501(c)(3) of the Internal Revenue Code as a deductible.
If I Am a Sole Proprietor or Single Member LLC, Should I Donate Personally or as an Entity?
Determining whether to donate personally or as an entity is ultimately your choice; however, there are tax advantages to donating one way or the other in certain circumstances. A sole proprietorship and a single-member LLC are ‘pass-through’ entities, meaning that taxes are filed on the owner’s tax return. If your personal deductions will not exceed the standard deduction, then donating as an individual is most likely not going to be advantageous. You cannot add charitable donations in addition to the standard deduction and using the individualized deductions for donations alone could put you at a loss unless you donated thousands of dollars. On the contrary, donations made by a business are considered expenses and reduce the reported profit. You should consult with a licensed CPA to determine which strategy is best for you before donating.
What is the Difference Between a Donation Agreement and a Simple Receipt?
A Donation Agreement is much more detailed than a simple receipt and contains information about both parties. During an audit, a Donation Agreement will go much farther than a simple receipt. The Donors name and address identifies you as the individual who donated and is proof from the organization that the donation was received.
In case the organization does not have a Donation Agreement handy, you should have one prepared by printing off this free template.